Callable, Puttable & Convertible Bonds Explained | Series 7 Exam Focus

Описание: This lesson explains callable, puttable, and convertible bonds, a high-yield testing area on the Series 7 General Securities Representative Exam, administered by FINRA.

FINRA does not test these bonds as feature checklists. Instead, they appear in scenario-based multiple-choice questions designed to assess whether candidates understand who controls the option, when it is exercised, and who bears the risk, all from a consumer-protection perspective.

In this episode, we break down callable bonds, explaining why call features primarily benefit issuers and expose investors to call risk and reinvestment risk, especially when interest rates fall. We then examine puttable bonds, highlighting how put options protect investors in rising-rate environments by giving them control over early redemption.

The lesson also explores convertible bonds, a hybrid security combining fixed-income features with potential equity upside. We explain why convertibles usually offer lower coupons, how conversion value depends on stock performance, and why these bonds introduce equity-like volatility that may be unsuitable for conservative clients.

Throughout the lesson, the emphasis is on exam application and suitability, helping candidates avoid common Series 7 traps such as assuming bond features always benefit investors or failing to identify who truly controls the embedded option.

This lesson is part of Phase 3: Debt Securities and builds directly toward bond ratings, credit risk, and bond suitability, all of which rely on understanding how bond features alter risk exposure.

This content is for educational purposes only and does not constitute financial or investment advice.

⸻

Key Topics Covered

• What embedded bond options are
• Callable bonds and issuer advantage
• Call risk and reinvestment risk
• Puttable bonds and investor protection
• Rising interest-rate environments
• Convertible bonds as hybrid securities
• Equity upside vs lower income trade-off
• Suitability of bonds with embedded options