If a firm retires or extinguishes a debt issue before maturity, the specific amount they pay is:
A)the amortization amount.
B)the call price.
C)the sinking fund amount.
D)the spread premium.
E)None of the above.

Question

Quizplus · Accepted Answer

The specific amount a firm pays when retiring or extinguishing a debt issue before maturity is known as the call price. This is the price set in the bond indenture which the issuer must pay to call or redeem the bonds before their scheduled maturity date. The call price may be equal to the face value of the bond or at a premium above it, and it compensates bondholders for the early repayment of their investment. Amortization amount refers to the gradual reduction of the principal balance over time through a series of periodic payments. Sinking fund amount represents a fund into which the issuer regularly deposits money to retire bonds before maturity. Spread premium refers to the difference between the yield offered by a security and the yield offered by a similar risk-free security.

If a Firm Retires or Extinguishes a Debt Issue Before