Which of the Following Statements Is CORRECT

question 25

Multiple Choice

Which of the following statements is CORRECT?

• A) Other things held constant, a callable bond should have a lower yield to maturity than a noncallable bond.
• B) Once a firm declares bankruptcy, it must then be liquidated by the trustee, who uses the proceeds to pay bondholders, unpaid wages, taxes, and lawyer fees.
• C) Income bonds must pay interest only if the company earns the interest.Thus, these securities cannot bankrupt a company prior to their maturity, and this makes them safer to the issuing corporation than "regular" bonds.
• D) A firm with a sinking fund that gave it the choice of calling the required bonds at par or buying the bonds in the open market would generally choose the open market purchase if the coupon rate exceeded the going interest rate.
• E) One disadvantage of zero coupon bonds is that the issuing firm cannot realize any tax savings from the debt until the bonds mature.

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Definitions:

Chance

The occurrence of events in the absence of any obvious intention or cause.

Drink Tea

The action of consuming tea by drinking.

Drink Seltzer

Refers to the act of consuming seltzer water, a carbonated drink that may be flavored but does not contain alcohol.

Own A Car

Refers to the state or condition of having legal ownership and possession of an automobile.