easy · Debt Capital Markets
What is the primary risk an investor takes when buying a premium bond that has an embedded call option?
- The issuer may call the bond at par, resulting in an immediate capital loss for the investor.
- The issuer will increase the coupon rate, causing the price to fall.
- The bond's yield to maturity will rise to match the higher coupon.
- The investor will be forced to sell the bond back at a discount price.
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