Question

A high coupon bond is likely to be called by the issuing firm if (a) required yields rise. (b) it has a high call premium. (c) it has a low rating. (d) required yields fall. (e) its interest is tax free.

Answer 1

Answer: (d) required yields fall.

Explanation

Higher Coupon rate Callable bonds are at risk of being recalled by an issuer when required yields fall.

Usually, the new Issuer would have to pay a rate that mirrors the current interest rate. If it is high, their payments will be high, low and vice versa.

They figured though that instead of paying high interest even when interest is low, they could just recall the bond and reissue another one that reflects a low interest rate.

This is therefore now a very widespread practice.

If Required Yields fall, there is a chance of the bond being recalled.

If you need any clarification please feel free to comment or react. Thank you.

Answer 2

Answer:

Correct option is D

Explanation:

Required yields falls.