Financial Industry Regulatory Authority (FINRA) Practice Exam 2026 - Free FINRA Practice Questions and Study Guide

The put feature on a bond is designed specifically to enhance the bondholder's security and flexibility. It allows the bondholder to sell the bond back to the issuer at predetermined times and prices before the bond’s maturity date. This offers a safeguard if market conditions become unfavorable, such as rising interest rates or deteriorating credit quality of the issuer. In such situations, the bondholder can "put" the bond back to the issuer, rather than holding it until maturity and potentially suffering losses.

This feature is particularly valuable in volatile markets as it provides the bondholder with an exit strategy, thus mitigating downside risk. It is essential for investors who wish to maintain some control over their investment and want assurance that they can retrieve their capital under adverse circumstances.

The other options refer to features and functions that are not inherently linked to the put provision, such as coupon rates, guaranteed interest payments, or adjustments made by the issuer, which do not pertain to the bondholder's flexibility in redeeming the bond early under favorable conditions.