The City of St. Joe had outstanding $5 million of 6 percent bonds with a call provision. Due to changes in the prevailing interest rates, the city issued new bonds at 4.5 percent and used the proceeds to call the 6 percent bonds. This is an example of

Question

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Debt refunding occurs when an entity issues new debt at a lower interest rate to retire existing higher-rate debt, which is exactly what the City of St. Joe did by issuing new 4.5 percent bonds to replace the 6 percent bonds.