Call Provisions Usually Arise When the Issuing Company Wants the Option

question 158

Multiple Choice

Call provisions usually arise when the issuing company wants the option to:

• A)retire the bonds earlier than planned because it has more capital than it needs.
• B)require the retirement of bonds if market interest rates rise substantially above the coupon rate.
• C)retire high interest rate bonds replacing them with lower cost debt when interest rates drop.
• D)refund their debt because interest rates are escalating.

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Definitions:

Inactivated Shelf Life

The duration for which a product or substance remains effective or safe to use after its activation has been halted or not initiated.

Internal Rate of Return

The discount rate that makes the net present value of all cash flows from a particular project equal to zero.

Cash Flows

The sum of funds flowing in and out of a company, impacting its ability to cover short-term obligations.

Initial Cost

The total of all expenses incurred to acquire an asset or investment, including purchase price and all related fees.