Asked by Hailey Gallant on Jul 03, 2024
Verified
Corporations are likely to exercise call provisions whenever interest rates fall significantly below a bond's coupon rate.
Call Provisions
Conditions under which a bond issuer can retire the bond before it matures.
Interest Rates
It denotes the cost, specified as a percentage of the principal, imposed on borrowers by lenders for the privilege of using their assets.
Coupon Rate
The annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity.
- Comprehend the principal attributes and traits of bonds, such as call options, conversion features, and interest rate specifics.
- Gain knowledge about the impact of interest rate changes on bonds' call provisions and pricing.
Verified Answer
ZK
Zybrea KnightJul 06, 2024
Final Answer :
True
Explanation :
When interest rates fall significantly below a bond's coupon rate, the corporation can issue new bonds at a lower interest rate, so they will likely call the old bonds with higher interest rates to save money.
Learning Objectives
- Comprehend the principal attributes and traits of bonds, such as call options, conversion features, and interest rate specifics.
- Gain knowledge about the impact of interest rate changes on bonds' call provisions and pricing.
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