Suppose a company issued 30-year bonds 4 years ago, when the yield curve was inverted.Since then long-term rates (10 years or longer) have remained constant, but the yield curve has resumed its normal upward slope.Under such conditions, a bond refunding would almost certainly be profitable.

Question

Quizplus · Accepted Answer

Since long-term rates have remained constant and the bonds were issued when the yield curve was inverted (implying higher short-term rates than long-term rates), refunding with new long-term debt would not result in lower interest costs because the rates have not decreased.

Suppose a Company Issued 30-Year Bonds 4 Years Ago, When