Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby

Exercise 41

Ethical Decision Making: A Real-Life Example
Many retired people invest a significant portion of their money in bonds of corporations because of their relatively low level of risk. During the 1980s, significant inflation caused some interest rates to rise to as high as 15 percent. Retired people who bought bonds that paid only 6 percent continued to earn at the lower rate. During the 1990s, inflation subsided and interest rates declined. Many corporations took advantage of the callability feature of these bonds and retired the bonds early. Many of these early retirements of high interest rate bonds were replaced with low interest rate bonds.
Required:
In your judgment, is it ethical for corporations to continue paying low interest rates when rates increase but to call bonds when rates decrease Why or why not