Question

What's the difference between a call for sinking fund purposes and a refunding call? a) A sinking fund call reduces the interest rate, while a refunding call pays off the bond. b) A sinking fund call repurchases bonds in the open market, while a refunding call repays bondholders. c) A sinking fund call pays off a portion of the bond principal, while a refunding call issues new bonds to replace old ones. d) A sinking fund call occurs when a bond matures, while a refunding call occurs when interest rates rise.

Answer 1

c. a sinking fund call pays off a portion of the bond principal, while a refunding call issues new bonds to replace old ones.

Step-by-step explanation:

a sinking fund call involves using a portion of the funds set aside in a sinking fund to redeem a part of the bond's principal amount before it matures.

a refunding call, on the other hand, typically involves issuing new bonds at a lower interest rate to retire the existing bonds, thereby replacing the old debt with new debt at more favorable terms.