SIE (Securities Industry Essentials) Practice Exam

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Call protection is most valuable to a bond owner when bond prices are:

Falling
Remaining stable
Volatile
Rising

The correct answer is: Rising

Call protection is most valuable to a bond owner when bond prices are rising. This means that the bond's interest rate is lower than the current market rate, and therefore the bond owner does not have to worry about the issuer calling back the bond and reissuing it at a lower interest rate. If bond prices are falling, remaining stable, or volatile, the issuer may exercise the call provision and call back the bond, leaving the bond owner with a lower return on their investment. Therefore, option D is the correct answer.