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

Question: 1 / 400

What is the main reason puttable bonds are returned to issuers?

To sell them at a profit

To refinance at a lower interest rate

When market interest rates rise above the bond's coupon rate

Puttable bonds provide the bondholder with the option to sell the bonds back to the issuer at specified times before maturity. The primary reason for exercising this option often relates to changes in interest rates. When market interest rates rise above the bond's coupon rate, the bondholder can find more attractive investment opportunities that yield higher returns. Consequently, returning the puttable bond to the issuer allows the bondholder to reinvest in more lucrative options.

This mechanism serves as a form of protection for the investor, ensuring they are not stuck holding a bond with a relatively low returns when better opportunities arise due to shifting interest rates. It is a strategic move to safeguard the investor’s interests in a changing economic landscape. Therefore, the answer is rooted in the bondholder’s response to fluctuating market conditions regarding interest rates.

Get further explanation with Examzify DeepDiveBeta

For liquidity purposes

Next Question

Report this question

Download Financial Industry Regulatory Authority (FINRA) Practice Exam PDF Study Guide
Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy