Which of the following events would make it more likely that a company would choose to call its outstanding callable bonds? a. Market interest rates rise sharply. b. Market interest rates decline sharply. c. The company's nancial situation deteriorates signicantly. d. Ination increases signicantly. e. The company's bonds are downgraded
Which of the following events would make it more likely that a company would choose to call its outstanding callable bonds? a. Market interest rates rise sharply. b. Market interest rates decline sharply. c. The company's nancial situation deteriorates signicantly. d. Ination increases signicantly. e. The company's bonds are downgraded
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 21QTD
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Question
Which of the following events would make it more likely that a company would choose to call its outstanding callable bonds?
a. Market interest rates rise sharply.
b. Market interest rates decline sharply.
c. The company's nancial situation deteriorates signicantly.
d. Ination increases signicantly.
e. The company's bonds are downgraded.
Please explain.
Expert Solution
Step 1
Callable Bonds are the bonds that are issued with a privilege of redeeming early before expiry.
A company would use its call privilege when the interest rates in market is less than the coupon rate offered by the company
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