[amp_mcq option1=”issuance provision” option2=”bond provision” option3=”call provision” option4=”First provision” correct=”option3″]
The correct answer is C. call provision.
A call provision is a feature of a bond that allows the issuer to repurchase the bond at a specified price before the maturity date. This is usually done when interest rates have fallen and the issuer can refinance the bond at a lower interest rate.
If a bond’s call provision is exercised in the first year of issuance, the issuer will typically pay a call premium, which is an additional amount above the face value of the bond. This is because the bond is considered to be a relatively new issue and has a higher yield than bonds that have been issued for a longer period of time.
The other options are incorrect.
- Issuance provision is a general term that refers to any provision that is included in a bond indenture. This could include the call provision, as well as other provisions such as the sinking fund provision and the restrictive covenants.
- Bond provision is a more specific term that refers to the provisions that are specific to a particular bond issue. This could include the call provision, as well as other provisions such as the interest rate, the maturity date, and the par value.
- First provision is not a technical term and is not used in the context of bonds.