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All else equal, which of the following would be MOST preferable from a bond ISSUER'S viewpoint?...

All else equal, which of the following would be MOST preferable from a bond ISSUER'S viewpoint?

A conventional fixed rate bond.

A putable bond.

A callable bond.

A step-up coupon bond.

All of the bonds listed are equally preferable from the issuer's standpoint.

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Homework Answers

Answer #1

Issuer of the bond is the one who issues the bond to raise money in other words, issuer is a borrower.

Bondholer is the one who holds the bond and lends the money in other words, bondholder is a lender.

A conventional fixed rate bond is a bond in which the issuer needs to pay a fixed amount of interest irrespective of the change in interest rate. So, this type of bond is not preferred by the issuer as irrespective of the interest rate issuer has to pay the fixed payment.

Callable bonds gives right to the borrower to prepay the loan. So, this type of bond is preferred by the issuer.

Putable bond gives right to the lenders/bondholders so it is not preferred by issuers.

A step up bond gives an advantage to the bondholder of fixed income securities while keeping up with the rising interest rate.

Hence, Option C is the answer.

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