Debt Retirement Features

C

Certainly! Let's go through each statement and determine which one is true:

A. A bond issue must be retired in its entirety when exercising a call feature. This statement is not true. When a bond includes a call feature, it means that the issuer has the right to retire or redeem the bond before its maturity date. However, the issuer is not obligated to retire the entire bond issue when exercising the call feature. The issuer can choose to retire only a portion of the outstanding bonds, usually at a predetermined call price or call premium.

B. A make-whole premium provision and call price are identical terms. This statement is also not true. A make-whole premium provision and call price are not identical terms. The call price refers to the price at which the issuer can retire the bond when exercising the call feature. It may be a predetermined price, typically above the face value of the bond. On the other hand, a make-whole premium provision is a clause in the bond contract that requires the issuer to compensate the bondholders for the present value of future interest payments they would have received if the bond had not been called early. It is a way to provide bondholders with a fair value for the bond if it is called before maturity.

C. A bond can be retired early even if it is nonrefundable. This statement is true. A nonrefundable bond refers to a bond that cannot be redeemed or retired by the issuer before its maturity date. However, even if a bond is nonrefundable, it can still be retired early through means other than redemption by the issuer. For example, the bond may be purchased by a third party in the secondary market, or the bondholder may choose to sell it. The nonrefundable nature of the bond means the issuer is not required to retire it early, but it doesn't prevent the bond from being retired before maturity through other channels.

In summary, the true statement among the given options is: C. A bond can be retired early even if it is nonrefundable.