The correct answer is D. call protection.
Call protection is a provision in a bond indenture that prohibits the issuer from calling the bond for a specified period of time. This protection is designed to give bondholders a chance to earn a return on their investment before the bond is called.
There are two main types of call protection:
- Absolute call protection: This type of protection prohibits the issuer from calling the bond for the entire life of the bond.
- Deferred call protection: This type of protection prohibits the issuer from calling the bond for a specified period of time, after which the bond can be called at the issuer’s discretion.
Call protection is an important consideration for investors, as it can affect the potential return on their investment. Bonds with call protection typically have lower yields than bonds without call protection, as investors are willing to accept a lower yield in exchange for the protection against early call.
However, it is important to note that call protection is not absolute. In some cases, the issuer may be able to call a bond even if it is protected by call protection. This can happen if the issuer experiences financial difficulties and needs to raise cash quickly.
Overall, call protection is an important consideration for investors who are considering investing in bonds. It is important to understand the different types of call protection and how they can affect the potential return on your investment.