Five years ago, Spencer industries issued 30 year bonds with a 7% coupon rate callable at par after five years. Inflation has subsided and the yield on bond's similar to Spencer's is now 5%.

Question

Quizplus · Accepted Answer

Given the decrease in interest rates from 7% to 5%, Spencer Industries can refinance their debt at a lower cost. Calling the existing bonds allows them to reissue new bonds at the current lower rate, saving on interest expenses.

Five Years Ago, Spencer Industries Issued 30 Year Bonds with a 7