Under what circumstances would a firm be more likely to buy the required number of bonds in the open market as opposed to using one of the other procedures?

Question

Caleb Phillips

Business

6 August, 18:20

Under what circumstances would a firm be more likely to buy the required number of bonds in the open market as opposed to using one of the other procedures?

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Answers (1)

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Simone Waters · Answer 1

When interest rate are higher than coupon rate the company may want to purchase the bond in the open market

Explanation:

As the market value of the bond is considered as the present value of the coupon and maturity discounted at market rate a higher rate will make the present value of the bond to decrease therefore, below par. this makes the company a better option to purchase the bond rather than calling if it wants to retire the bonds.