If the price of the bond is initially discounted and offers no coupon payments, the bond is called azero coupon bond.

The contract that describes the terms of a borrowing arrangement between a firm that sells a bond issue and the investors who purchase the bonds is called theindenture $.$

Issuers can gradually reduce the outstanding balance of a bond issue by using a sinking fund account into which they deposit a specified amount of money each year. To operationalize the sinking fund provision of an indenture, issuers can $(1)$ purchase a portion of the debt in the open market or $(2)$ call the bonds if they contain a call provision.

Under what circumstances would a firm be more likely to buy the required number of bonds in the open market as opposed to using one of the other procedures?

When interest rates are lower than they were when the bonds were issued

When interest rates are higher than they were when the bonds were issued