Study Question of the Week: July 9, 2014 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 7, 51, 52, 53, 62, 79, 82, and 99. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Study ? of the Week

Question (Relevant to the Series 7Series 51Series 52Series 53, Series 62, Series 79, Series 82, and Series 99): 

When new bonds are issued with the purpose of using the proceeds to pay off older bonds, it is called?

Answers:

A. Refunding

B. Defeasement

C. A sinking fund redemption

D. A bond SWAP

Correct Answer: A. Refunding

Rationale: A bond refunding is the replacement of existing bonds with new “refunding“ bonds. The issuer of refunding bonds often seeks to lower its interest payments by paying off its previously issued (refunded) bonds with newly issued bonds that pay interest at a lower rate. Another reason to refund existing bonds may be to release the issuer from legal covenants or restrictions in the original indenture.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

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