Financial Planner

Answer: C - When the market is suffering from extremely high interest rates a company would want to avoid the maturity of their bonds to negate an adverse financial effect; they would do this through callable provisions. This allows a firm to buy back bonds at a specified price before maturity. If the bonds were issued during a period of high interest rates, it may make sense for a firm to refinance new debt a t a lower interest rate. The call price is usually less than the market price, if the call price is higher than the market price; it is not beneficial for the issuer to call the bonds. The call price acts like a ceiling in periods of falling interest rates.