The call option in a bond has a greater chance of being exercised (to the detriment of the bondholder) if market interest rates have fallen since the bond was issued.

Question

Quizplus · Accepted Answer

When market interest rates fall, the issuer can refinance the debt at a lower cost by calling the existing bonds and reissuing new ones at the lower rates, which is to the detriment of bondholders who lose out on higher interest payments.

The Call Option in a Bond Has a Greater Chance