If a bond is callable and if interest rates in the economy decline, then the company can sell a new issue of low-interest-rate bonds and use the proceeds to "call" the old bonds in and have effectively refinanced at a lower rate.

Question

Quizplus · Accepted Answer

If a bond is callable, the issuer has the option to redeem the bond before its maturity date. If interest rates decline, the issuer can issue new bonds with lower interest rates, which can effectively refinance the old bonds by redeeming them early. This is a common strategy used by companies to take advantage of lower interest rates and reduce their borrowing costs. Therefore, the statement is true.

If a Bond Is Callable and If Interest Rates in the Economy