An 8% debenture has five years of call protection and is thereafter callable at 100%,except that it is nonrefundable below interest cost.Which of the following statements is correct?
A)The debenture may be called any time during the next five years.
B)The debenture may not be called during the next five years.
C)The lender has the option to demand early repayment.
D)The bond should be called when the yield on similar noncallable bonds falls to 8%.

Question

Quizplus · Accepted Answer

The debenture has five years of call protection, which means that it cannot be called during that time. After the five-year period, it can be called at 100%, but only if the interest cost is covered, which means that it cannot be called below the interest rate. Therefore, option B is correct as the debenture cannot be called during the next five years.

An 8% Debenture Has Five Years of Call Protection and Is