A Bond Has a Make-Whole Call Provision

question 10

Multiple Choice

A bond has a make-whole call provision.Given this, you know that the:

• A)bond will always sell at par.
• B)call premium must equal the annual coupon payment.
• C)call price is directly related to the market rate of interest.
• D)call price is inversely related to the market rate of interest.
• E)bond must be a zero coupon bond.

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Definitions:

Nikkei

A stock market index for the Tokyo Stock Exchange, often used to gauge the performance of the Japanese economy.

Futures Contract

A legal agreement to buy or sell a particular commodity or asset at a predetermined price at a specified time in the future.

Futures Contract

A standardized legal agreement to buy or sell something at a predetermined price at a specified time in the future, used primarily in trading commodities or financial instruments.

LIBOR

The London Interbank Offered Rate, a benchmark interest rate at which major global banks lend to one another, often used as a reference rate in financial markets.