If a Bond Is Callable and If Interest Rates in the Economy

question 6

True/False

If a bond is callable and if interest rates in the economy decline, then the company can sell a new issue of low-interest-rate bonds and use the proceeds to "call" the old bonds in and have effectively refinanced at a lower rate.

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Definitions:

Unrealized Gain

A profit that has occurred on paper due to an investment's increased value but has not yet been realized through a sale.

Market Value

The estimated worth or price at which an asset would trade in a competitive auction setting.

Accounting

The systematic process of recording, analyzing, and reporting financial transactions of a business or individual.

Investment

Allocation of resources, usually money, in the expectation of generating an income or profit.