The Following Are Some of the Complications Associated with Call

Multiple Choice

The following are some of the complications associated with call provisions of bonds:

A) The firm may be prevented from calling a bond because of a nonrefunding clause from issuing new debt.
B) The firm may be prevented from calling a bond because of a nonrefunding clause from issuing new debt, and the call premium is a tax-deductible expense for the firm but is taxed as capital gains to bondholders.
C) The firm may be prevented from calling a bond because of a nonrefunding clause from issuing new debt, the call premium is a tax-deductible expense for the firm but is taxed as capital gains to bondholders, and there may be other tax consequences to both the firm and the bondholders from replacing a low-coupon bond with a higher-coupon bond.
D) The firm may be prevented from calling a bond because of a nonrefunding clause from issuing new debt, the call premium is a tax-deductible expense for the firm but is taxed as capital gains to bondholders, there may be other tax consequences to both the firm and the bondholders from replacing a low-coupon bond with a higher-coupon bond, and there are costs and delays associated with calling and reissuing debt.