Bond refunding occurs when a company redeems a callable issue and sells a(n) ____.
A) equity issue, thereby reducing outstanding debt
B) lower-cost issue
C) preferred issue with a low dividend rate
D) None of these are correct

Question

Quizplus · Accepted Answer

Bond refunding involves redeeming a callable issue and then issuing new bonds with a lower interest rate, resulting in lower interest expense for the company. Therefore, the correct choice is B, which refers to a lower-cost issue. The other choices do not accurately reflect the process of bond refunding.

Bond Refunding Occurs When a Company Redeems a Callable Issue