Certified Trust and Fiduciary Advisor (CTFA) Practice Exam 2025 – All-in-One Guide to Exam Success!

Debentures typically include features that allow for various investment protections and conditions, one of which can include a refunding provision. A 12th year refunding provision means that after a specified period (in this case, the 12th year), the issuer has the option to redeem the bonds or debentures that were issued, typically at a predetermined price. This feature provides flexibility for issuers to restructure their debt if interest rates decline or if they wish to improve their capital structure.

Municipal bonds may also have refunding provisions, but the specific mention of a "12th year" provision aligns more closely with the common characteristics of debentures, which often include flexible maturity and repayment terms. Corporate stocks do not typically have refunding provisions because they represent equity ownership rather than debt. Government bonds may have their characteristics, but the unique nature of debentures, especially concerning the conditions outlined, is what qualifies them to carry such a provision, making them the correct answer in this context.