Callable bonds are those which contain a condition that the municipality may pay the principal at some future time before the maturity date of the bonds.

Callable bonds are those which contain a condition that the municipality may pay the principal at some future time before the maturity date of the bonds.

• A. True
• B. False
• C. They must be redeemed at maturity only
• D. They cannot be redeemed early

Answer: (A)

A callable bond has a built‑in feature that gives the issuer the right to repay the principal before the scheduled maturity date under specified conditions. The statement describes exactly that ability—the municipality may call the issue and pay it off early if the call provision is exercised. This flexibility is a fundamental characteristic of callable bonds and is often used to refinance debt when interest rates drop, potentially allowing the issuer to issue new bonds at a lower cost. While many bonds can be noncallable and must be redeemed at maturity, the defining trait of a callable bond is this early redemption option for the issuer.

A callable bond has a built‑in feature that gives the issuer the right to repay the principal before the scheduled maturity date under specified conditions. The statement describes exactly that ability—the municipality may call the issue and pay it off early if the call provision is exercised. This flexibility is a fundamental characteristic of callable bonds and is often used to refinance debt when interest rates drop, potentially allowing the issuer to issue new bonds at a lower cost. While many bonds can be noncallable and must be redeemed at maturity, the defining trait of a callable bond is this early redemption option for the issuer.