A firm can retire its debt by

Question

Quizplus · Accepted Answer

A firm can retire its debt by either exercising its call option on the bond or forcing conversion of the bond. Therefore, both choices A and B are correct. Choice C is incorrect because exercising the put option would require the firm to repurchase the bond at a predetermined price, which does not necessarily retire the debt. A firm can retire its debt by exercising its call option on the bond or by forcing conversion of the bond. The call option allows the firm to redeem the bond before its maturity date at a specified price. The conversion option allows the bondholders to convert their bonds into shares of common stock, and the firm can retire the debt by issuing the required number of shares of common stock. Both options provide a way for the firm to retire its debt and reduce its interest expense.

A Firm Can Retire Its Debt by