If you buy a callable bond and interest rates decline, will the value of your bond rise by as much as it would have risen if the bond had not been callable? Explain. A callable bond is a bond that can be redeemed before its maturity date. This basically means that the issuer can call the bond at a predetermined call date if they chose to. If interest rates decline in the market, the value of your callable bond will not rise as much as a regular bond would.
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Generally, when interest rates in the market decline, the prices of existing bonds rise. This is because the fixed interest payments of existing bonds become more attractive compared to the new bonds issued at the lower current interest rates. Show more…
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