Which characteristic does a callable bond have?

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Master the UCF ACG2021 Principles of Financial Accounting Final Exam. Study with comprehensive practice tests, flashcards, and multiple choice questions, each with detailed explanations. Ace your exam!

A callable bond is characterized by the feature that allows the borrower (the issuer of the bond) to repay the bond before its specified maturity date at a predetermined price, also known as the call price. This option provides flexibility to the issuer, as they can refinance the debt if interest rates decline or if they have excess cash.

The ability to call the bond affects its yield; generally, callable bonds tend to offer higher yields than non-callable bonds to compensate investors for the added risk of early redemption. This is particularly advantageous for issuers who want to take advantage of favorable conditions in the credit market.

In contrast, a bond that cannot be repaid before maturity would represent a non-callable bond, meaning that the issuer does not have the option to pay it off early. The feature associating bonds with being tied to an asset would describe secured bonds, while the requirement for bonds to mature in installments would relate to amortizing bonds, which does not apply to callable bonds. Thus, identifying that the callable bond has a specific early repayment feature is essential for understanding its implications in finance.