The Following Are Some of the Complications Associated with Call

question 79

Multiple Choice

The following are some of the complications associated with call provisions of bonds:

• A)The firm may be prevented from calling a bond because of a nonrefunding clause from issuing new debt.
• B)The firm may be prevented from calling a bond because of a nonrefunding clause from issuing new debt, and the call premium is a tax-deductible expense for the firm but is taxed as capital gains to bondholders.
• C)The firm may be prevented from calling a bond because of a nonrefunding clause from issuing new debt, the call premium is a tax-deductible expense for the firm but is taxed as capital gains to bondholders, and there may be other tax consequences to both the firm and the bondholders from replacing a low-coupon bond with a higher-coupon bond.
• D)The firm may be prevented from calling a bond because of a nonrefunding clause from issuing new debt, the call premium is a tax-deductible expense for the firm but is taxed as capital gains to bondholders, there may be other tax consequences to both the firm and the bondholders from replacing a low-coupon bond with a higher-coupon bond, and there are costs and delays associated with calling and reissuing debt.

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