The call feature is an advantage to the issuing firm
A)if the bond has a floating rate
B)if interest rates decline
C)if the bond has a low par value
D)if interest rates increase

Question

Quizplus · Accepted Answer

If interest rates decline, the issuing firm can call the bond and reissue new bonds at a lower interest rate, thereby reducing its cost of borrowing. This is the main advantage of the call feature for the issuing firm. If interest rates increase, the call feature would be a disadvantage for the issuing firm since it would have to pay a higher interest rate to reissue new bonds. The par value or floating rate of the bond do not necessarily affect the advantage of the call feature.

The Call Feature Is an Advantage to the Issuing Firm