Canadian Securities Course (CSC) Level 1 Practice Exam

What is the difference between extendible and retractable bonds?

1. Extendible bonds have a fixed maturity date

2. Retractable bonds offer no option for redemption

3. Extendible bonds are issued with short maturities

4. Retractable bonds can be redeemed at par by a specific date

The correct answer is: Retractable bonds can be redeemed at par by a specific date

Retractable bonds give the bondholder the option to redeem the bond at par value by a specific date agreed upon in the bond's terms. This feature provides the investor with flexibility and an exit strategy if needed. In contrast, extendible bonds allow the issuer to extend the maturity date in the future, thus providing the issuer with flexibility rather than the investor.