Recent research evidence suggests that when interest rates are high, the call premium generally increases.

Question

Quizplus · Accepted Answer

When interest rates are high, the cost of borrowing increases, making it more expensive for companies to refinance existing debt. As a result, they are willing to pay a higher premium to call (or retire) their existing bonds early, before interest rates rise further, to avoid higher future financing costs. This leads to an increase in the call premium.

Recent Research Evidence Suggests That When Interest Rates Are High