Which of the Following Statements Regarding the Yield Calculation of a Callable

question 21

Multiple Choice

Which of the following statements regarding the yield calculation of a callable bond is FALSE?

• A)The assumption that underlies the yield calculation of a callable bond-that it will not be called-is not always realistic,so bond traders often quote the yield to call.
• B)The yield to call (YTC)is the annual yield of a callable bond assuming that the bond is called at the earliest opportunity.
• C)We can think of the yield to maturity of a callable bond as the interest rate the bondholder receives if the bond is not called and repaid in full.
• D)Because the price of a callable bond is higher than the price of an otherwise identical non-callable bond,the yield to maturity of a callable bond will be lower than the yield to maturity for its non-callable counterpart.

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Definitions:

Simplify

The process of reducing an expression to its simplest form, making it easier to understand or solve.

\(8^x\cdot 8^{x-1}\)

An expression that can be simplified to \(8^{2x-1}\) using the properties of exponents.

\(10,000(1.07)^{4t}\)

An exponential growth equation, where \(10,000\) is the initial quantity and \(1.07\) is the growth factor applied every period \(t\), scaled by a factor of 4.

\(10,000(1.09)^{3t}\)

An exponential function, often used in finance to calculate compounded interest or investment growth over time.