Timmins Ltd.is issuing bonds today to finance the expansion of their production facilities.If Timmins thinks that interest rates are going to fall over the next few years, while the bond is outstanding, what feature might they want to add to the bond?

Question

Quizplus · Accepted Answer

If Timmins Ltd. anticipates a fall in interest rates in the future, they might prefer to issue callable bonds. This feature allows the issuer to redeem the bonds before their maturity date, typically at a premium. If interest rates do indeed fall, Timmins could refinance the debt at a lower cost by calling the existing bonds and reissuing new ones at the lower rates, thus saving on interest expenses.