The Following Are Some of the Complications Associated with Call

question 4

Multiple Choice

The following are some of the complications associated with call provisions of bonds:
I.The firm may be prevented from calling a bond because of a nonrefunding clause from issuing new debt.
II.The call premium is a tax-deductible expense for the firm but is taxed as capital gains to bondholders.
III.There may be other tax consequences to both the firm and the bondholders from replacing a low-coupon bond with a higher-coupon bond.
IV.There are costs and delays associated with calling and reissuing debt.

• A)I only
• B)I and II only
• C)I, II, and III only
• D)I, II, III, and IV

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Definitions:

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