Question

When a firm refunds a debt issue, the firm's stockholders gain and its bondholders lose. This points out the risk of a call provision to bondholders and explains why a non-callable bond will typically command a higher price than an otherwise similar callable bond.a) trueb) false

Answer 1

True

Step-by-step explanation:

In simple words, an organisation call back its bonds when they art]e of high price in the market. Thus, it results in loss of bondholders as they have to sell it to the company at a lower price.

Therefore, non callable bonds demand higher price as one does not have the obligation to sell the bonds at a lower price. Due to this provision bond holders can enjoy higher interest as well as higher capital gains.