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

question 2

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 effectively refinance its debt at a lower rate. 

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Definitions:

Compounded Semi-annually

A method of calculating interest where the interest is added to the principal sum twice a year, resulting in interest on interest.

Semi-annual Payments

Payments that are made twice a year as a means to fulfill a financial obligation.

Loan

A borrowed amount of money that should be returned along with an additional interest payment.

Nominal Interest Rate

The stated annual interest rate on which the compound-interest calculation is based.