FINRA Practice Exam - Practice Test, Prep & Study Guide

A put feature in a bond allows bondholders to sell the bond back to the issuer at a predetermined price before the bond's maturity date, typically at par value. This feature provides an added layer of security for investors, as it offers them an option to exit the investment if interest rates rise or if the credit quality of the issuer declines.

Due to this additional security, bonds with a put feature are typically considered less risky from the bondholder's perspective. As a result, issuers can offer these bonds at a lower coupon rate than they would for comparable bonds without such a feature. Investors are generally willing to accept a lower yield in exchange for the flexibility and the protection that the put option provides. Hence, the existence of a put feature generally decreases the coupon rate of a bond compared to similar bonds lacking that feature.