Which type of bonds offer a higher yield?

(A) Callable bonds

(B) Noncallable bonds

Answer: Callable bonds

Explanation: In simple words, callable bonds refers to the bonds that have an embedded option that the issuer of such bonds can retain them at a specific date and a t a specific price.

The issuer of bonds holds the right to call back bonds and the bondholders have an obligation to do so. Thus, the holders of such bonds bears a high risk relating to reinvestment as the issuer will only repurchase these bonds when the yield in market is lower than the yield they are paying to the bond holders.

Therefore, at the time of issuance such bonds offer higher yields than market.