Bond refunding occurs when a company redeems a callable issue and
A)sells an equity issue, thereby reducing outstanding debt
B)sells a new issue with a lower coupon rate
C)sells a preferred issue with a low dividend rate
D)none of these is correct

Question

Quizplus · Accepted Answer

Bond refunding occurs when a company sells a new issue with a lower coupon rate, which helps them save on interest expenses. A callable bond issue is redeemed before its maturity date by the issuer, and the proceeds from the new bond issue can be used to repay the old bondholders. Selling equity or preferred issues does not involve bond refunding.

Bond Refunding Occurs When a Company Redeems a Callable Issue