Question

Which of the following statements is FALSE?

Group of answer choices

When bond yields have increased, by exercising the call on the callable bond and then immediately refinancing, the issuer can lower its borrowing costs.

To understand how call provisions affect the price of a bond, we first need to consider when an issuer will exercise its right to call the bond.

If the call provision offers a cheaper way to retire the bonds the issuer will forgo the option of purchasing the bonds in the open market and call the bonds instead.

An issuer can always retire one of its bonds early by repurchasing the bond in the open market.

Answer 1

Ans When bond yields have increased, by exercising the call on the callable bond and then immediately refinancing, the issuer can lower its borrowing costs.

The correct statement is When bond yields have increased, by exercising the call on the callable bond and then immediately refinancing, the issuer can INCREASE its borrowing costs.

An issuer of bonds can buyback the bonds from the market when they want. When an issuer will exercise its right to call the bonds it will help to understand that how can call provisions affect the price of the bond.