Asked by Jessica Hegyi on Jun 17, 2024
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Suppose a company issued 30-year bonds 4 years ago,when the yield curve was inverted.Since then,long-term rates (10 years or longer) have remained constant,but the yield curve has resumed its normal upward slope.Under such conditions,a bond refunding would almost certainly be profitable.
Long-Term Rates
Interest rates applied to loans or debt instruments, such as bonds, with a maturity of over a year.
Bond Refunding
The process of refinancing an existing bond issue by raising new debt at lower interest rates to pay off the old bonds before they mature.
Yield Curve
A graph that plots the interest rates of bonds having equal credit quality but differing maturity dates, typically showing the relationship between short-term and long-term bond yields.
- Comprehend the profitability and strategic reasoning behind bond refunding decisions.
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Learning Objectives
- Comprehend the profitability and strategic reasoning behind bond refunding decisions.
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