Firms That Issue Callable Bonds Have the Option of Repaying

question 66

Multiple Choice

Firms that issue callable bonds have the option of repaying the principal to the bond buyers before the stated maturity date for the bonds. Firms may call their bonds before maturity in order to avoid making some of the coupon payments. Should we expect the price of a callable bond to be higher or lower than the price of a non-callable bond that has the same coupon payment, principal, and effective yield?

• A) Price of the callable bond should be higher.
• B) Price of the bonds should be the same.
• C) Price of the callable bond should be lower.
• D) We need to know the year in which the bond is called in order to compare the prices.

Understand the basic concepts and goals of psychophysics.

Comprehend the relationship between physical stimuli and sensory perception.

Learn about Weber’s law and its implications for sensory perception.

Acquire knowledge on Fechner's law and how it describes the relationship between stimulus intensity and sensation.

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Definitions:

Economic Profits

The surplus remaining after total costs are subtracted from total revenues, taking into account both explicit and implicit costs.

Accounting Profits

The difference between total revenue and explicit costs; the net income a firm reports on its income statement.

Total Costs

The aggregate of all expenses associated with manufacturing products or services, which includes fixed and variable costs.

Most Efficient Output

The level of production at which a firm achieves the lowest possible cost per unit, maximizing productivity and minimizing waste.