Q606
A usage of proceeds of new issue to retire issue with high-rate is classified as
A.
refunding operation
AnswerB.
funding operation
C.
proceeds operation
D.
deferred operation
Answer: Option A
Solution
Answer: Option A
Solution:
A usage of proceeds of new issue to retire issue with high-rate is classified as refunding operation. Refunding is the process of retiring or redeeming an outstanding bond issue at maturity by using the proceeds from a new debt issue. The new issue is almost always issued at a lower rate of interest than the refunded issue, ensuring significant reduction in interest expense for the issuer.