Question
All else constant, an issuer always calls a bond after a downward movement in interest rates since it will help the issuer reduce the cost
All else constant, an issuer always calls a bond after a downward movement in interest rates since it will help the issuer reduce the cost of capital. True or False?
A. False. Because the issuer needs to take into account other factors: transaction costs, magnitude of the decrease, etc.
B. True. Because when interest rates go down, the issuer can refinance with lower costs of capital.
C. False. Because the issuers credit quality may improve in the future.
D. True. Because a downward movement in interest rates is both a necessary and sufficient condition for calling a bond.
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