When a corporation refunds a bond issue, choices have to be made between fixed-rate and floating-rate bonds based on expectations of future interest rates. Whether it is financially viable to refund a bond issue depends on many factors, including the magnitude of the decline in interest rates, the call premium, flotation costs, overlapping interest and the corporate tax rate, and all of these factors should be considered in the decision making process. This paper presents a comprehensive quantitative model that will assist the corporation to decide whether to refund and to select the best refunding option. Unlike prior studies, the model developed in this paper is.
