Bond refunding is generally advantageous to the investor because they get a higher future interest rate.

A. True

B. False

B. False

Explanation:

Refunding of bonds occurs when an entity that has issued reimbursable bonds asks for the security of debtors' debts for the express purpose of reissuing a new debt at a lower payment rate. It is in essence, the issuance of a new, low interest debt, which allows the company to prematurely repay the oldest and highest interest debt. On the contrary, non-refundable bonds may be enforceable but cannot be reissued with a lower payment rate. That is, they cannot be refunded. The process of withdrawing or rescuing an issue of outstanding bonds at maturity using the product of a new debt issue. The new issue is almost always issued at an interest rate lower than that of the reimbursed issue, which guarantees a significant reduction in the issuer's interest expense.

To summarize, it is false because their investment with a higher interest rate is withdrawn, and they should strive to replace this investment with a comparable liability, which probably will not return as much as the old obligation.