Which of the following factors would increase the likelihood that a company would call its outstanding bonds at this time?
A) The yield to maturity on the company's outstanding bonds increases due to a weakening of the firm's financial situation.
B) A provision in the bond indenture lowers the call price on specific dates, and yesterday was one of those dates.
C) The flotation costs associated with issuing new bonds rise.
D) The firm's CFO believes that interest rates are likely to decline in the future.

Question

Quizplus · Accepted Answer

A provision in the bond indenture that lowers the call price on specific dates creates an incentive for the company to call its outstanding bonds on those dates. Therefore, if yesterday was one of those dates, it would increase the likelihood that the company would call its outstanding bonds at this time. The other factors listed do not necessarily create a strong incentive for the company to call its outstanding bonds.

Which of the Following Factors Would Increase the Likelihood That