SIE practice questionmediumCallable bonds
If interest rates decline sharply, an issuer is MOST likely to:
- AIssue new debt with higher coupons
- BCall outstanding bonds and reissue new debt at lower rates✓ Correct answer
- CAllow bonds to mature naturally
- DBuy bonds in the secondary market at a premium
Explanation
Why B — Call outstanding bonds and reissue new debt at lower rates
Issuers call bonds to refinance at lower rates when interest rates fall. New higher coupon debt is unlikely, allowing bonds to mature misses the opportunity to lower costs, and buying at a premium is inefficient.
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