Is the cost of callable bond to the buyer higher

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Reference no: EM131896767

Is the cost of a "callable" bond to the buyer higher or lower than if it was not "Callable"? Why?

My response is: Callable bonds are a bit more complex from an investment standpoint. Unlike a regular bond that pays interest until expiration, a callable bond that can end at its original maturity date and the other at a callable date. The call price of a bond usually exceeds the face value to make it more enticing for investors to buy. There is a benefit to the issuer in the case of a decrease in interest rates. The issuer has the advantage to borrow money at a lower rate and then pay off the higher rated return on investments. This is not desirable to investors because of the redemption of bonds.

Reference no: EM131896767

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