The call policy that maximizes shareholder wealth is to call a bond issue when:
A) the bond's price is above par.
B) the callable bond value is above par, but below the call price.
C) the bond's price exceeds the call premium.
D) the callable bond value exceeds the call price.

Question

Quizplus · Accepted Answer

The call policy that maximizes shareholder wealth is to call a bond issue when the callable bond value exceeds the call price. This is because calling the bond allows the issuer to refinance at a lower cost if interest rates have fallen, thus reducing interest expenses and increasing shareholder value.

The Call Policy That Maximizes Shareholder Wealth Is to Call