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Helen [10]
3 years ago
9

An issuer decides to call in an outstanding bond issue under the terms detailed in the bond resolution because interest rates ha

ve dropped substantially after issuance. This type of call is a(n):________.
Business
1 answer:
tino4ka555 [31]3 years ago
6 0

Answer:

An optional Call

Explanation:

Callable Bond

Callable bond represents an instrument of debt where the issuer issues the instrument reserving the right to make a return of the principal of investors including the stoppage of interest payments before the date of maturity of the bond.

Organisations would usually issue bonds as callable when either to meet unexpected obligations like pay off other debts, fund expansions or when they sense that opportunities may arise in the future for them to get other forms of financing at lower interest rates.

For bonds to be callable the terms must be clearly stated in the bond's offering.

Optional Call

In optional call, the issuer reserves the right to call the bonds to take advantage of present circumstances such as significant drop in interest rates (as stated in the question). However, the terms detailed in the bond resolution will allow the bondholders to receive a premium to par as compensation for their loss of interest payments on the called bond.

Furthermore, a period of time must usually pass before the issuer can use the optional call.

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In simple words, potential economy refers to that level of output or GDP that an economy can produce and sustain over  along term with its given level of inflation and resources available.

Potential income has to be maintained over a long term and is based on the assumption that all of the resources available, whether human or natural, will be utilized as according to their maximum utility power.    

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