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A firm will call its callable bonds as soon as yields fall below the coupon rate...

A firm will call its callable bonds as soon as yields fall below the coupon rate on the bonds.

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True or False

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Answer #1

The Statement is True

The Company will likely caal it's bonds when the yield becomes less than coupon rate, because yield refers to the market return that the similar bond is giving, if the coupon rate is higher than yield, then the company is paying higher rate than prevailing in the market, which is the excess cost of company to debt.

The company will like to issue fresh bonds at similar yield returns and call the callable bonds, they pay the full amount of remaining coupon and principal till call date.

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