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

Call protection is essential for bond owners primarily in an environment where bond prices are rising. When bond prices increase, issuers may be incentivized to call, or redeem, bonds early to refinance at lower interest rates. For a bondholder, call protection ensures that they can hold onto their bond without the risk of early redemption, allowing them to benefit from the higher interest payments for the life of the bond.

Without call protection, rising prices could lead to an early call, which would force investors to reinvest their principal at a potentially lower prevailing interest rate, significantly impacting their expected returns. Therefore, in a rising interest rate environment, the presence of call protection provides security and stability for bondholders, making it extremely valuable in this context.