Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called

early retirement bonds.

debentures.

callable bonds.

options.

Answer)

The correct option in the given question is: Callable bonds.

A callable bonds gives the issuer a right (but not obligation), to call and redeem the bonds before its actual maturity date. It gives the issuer an option of redemption before maturity after a certain period of time has expired. The issuer generally exercises its right if after the expiry of certain lock-in period the market rate of interest has fallen in comparison to the market rate that was prevalent at the time of issue of bonds.

· Early retirement bonds: There is no such instrument issued by the issuer. Since no such instrument exists, this option is INCORRECT.

· Debentures: These are the instruments which are an acknowledgement of debt taken by the issuer. These instruments carry a fixed rate of interest and are generally issued for long term to meet the non-current funds requirement of the issuer. Since the instruments does not provide any special right to the issuer, this option is INCORRECT.

· Options: These are the financial instruments that give the BUYER (and not the issuer) a right but not obligation to buy a certain specified security at a given price within a certain specified date. Since the instruments does not provide any special right to the issuer, this answer is INCORRECT.