Which of the Following Statements Is False

question 5

Multiple Choice

Which of the following statements is false?

• A) When bond yields have increased, by exercising the call on the callable bond and then immediately refinancing, the issuer can lower its borrowing costs.
• B) To understand how call provisions affect the price of a bond, we first need to consider when an issuer will exercise its right to call the bond.
• C) If the call provision offers a cheaper way to retire the bonds the issuer will forgo the option of purchasing the bonds in the open market and will call the bonds instead.
• D) An issuer can always retire one of its bonds early by repurchasing the bond in the open market.

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Definitions:

Principal Repaid

The portion of a loan payment that goes toward reducing the original loan amount, as opposed to the portion that goes toward paying interest.

Interest Paid

The amount paid over a period for borrowing money, typically expressed as an annual percentage rate.

Loan

A sum of money that is borrowed and is expected to be paid back with interest.

Asset's Market Value

The current price at which an asset can be bought or sold in a marketplace, reflecting the value assigned to it by the market participants.