- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 2. Fixed-Income Cash Flows and Types
- Subject 1. Fixed-Income Cash Flow Structures
CFA Practice Question
A bond is said to be call protected when ______
B. interest rates rise.
C. the call period is deferred for several years.
D. the company is bankrupt.
A. the call price is greater than the face value.
B. interest rates rise.
C. the call period is deferred for several years.
D. the company is bankrupt.
Correct Answer: C
User Contributed Comments 6
| User | Comment |
|---|---|
| virginia | Why the answer is C? |
| ange | because that's the definition! The issuer cannot call the bond until several years later so the investor is protected. |
| katybo | protected for those years. |
| danlan | A does not make sense. B is for putable bond, or call is for the case when interest rate falls. D is related to default risk of bond |
| aravinda | I think call protection means, protection from early retirement of the bond. This is bad for the buyers. If the call period is deferresd for several years, then that should be called as 'deferred call' Notes says below: Call protection is much more absolute than refunding protection, and investors should not be lulled by a non-refunding provision. Noncallable bonds, not nonrefundable bonds, have complete protection against early retirement. |
| Bobokoko | Aravinda, Call protection is good for the buyers/investors. A bond would be called if req rates dropped below the coupon. This would be bad for bond holders. Call protection defers this to some future date. |