Which one of the following conditions will typically be present when a firm calls a bond prior to maturity?
A) The firm is in poor financial health.
B) Interest rates have risen substantially since the bond was issued.
C) Interest rates have fallen substantially since the bond was issued.
D) The call option is about to expire.

Question

Quizplus · Accepted Answer

Typically a firm will call a bond prior to maturity if interest rates have fallen substantially since the bond was issued. This allows the firm to reissue new bonds with a lower interest rate, thereby reducing their interest expenses.

Which One of the Following Conditions Will Typically Be Present