hi guys 103. Omega Corp. has outstanding a $100 million, 9% coupon bond issue that is refund protected until July 1, 2010. This issue: A. is noncallable. B. is call protected until July 1, 2010. C. currently may be redeemed with funds from general operations. D. currently may be redeemed but only if refunded by an issue with a lower cost. i dont understand why the answer is C , i tried searching in CFA books but i couldnt fin the answer any suggestions cheers
Refund protected just means that a company can’t retire debt while using the proceeds of issuing lower cost debt. They are able to refund using higher cost debtbut nobody will do it
The answer will be C. If an issue is refund protected, it can be called, but the redemption will be done thru some other source of funds other that a lower coupon issue.
Process of elimination leads to C.
as other said it’s C fixed income book explains call option, call protection and “refunded”
This debt is callable but cannot be refunded by an issue of lower cost debt. But after July 1, 2010 it is no more refund protected, whereby then the Omega may issue lower cost debt to retire the original debt.