Which of the Following Statements Is Correct

question 53

Multiple Choice

Which of the following statements is correct?

• A)Other things held constant, a callable bond would have a lower required rate of return than a noncallable bond.
• B)Other things held constant, a corporation would rather issue noncallable bonds than callable bonds.
• C)Reinvestment rate risk is worse from a typical investor's standpoint than interest rate price risk.
• D)If a 10-year, $1,000 par, zero coupon bond were issued at a price which gave investors a 10 percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, we could be sure that the bond would sell at a premium over its $1,000 par value.
• E)If a 10-year, $1,000 par, zero coupon bond were issued at a price which gave investors a 10 percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, we could be sure that the bond would sell at a discount below its $1,000 par value.

Identify costs associated with making or buying decisions and calculate their impact on profitability.

Recognize the importance of contribution margin in making decisions about product discontinuation or continuation.

Determine the relevance of sunk costs in decision-making processes.

Calculate the differential effect on profit from accepting special pricing orders.

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Definitions:

Call Option

A financial contract giving the buyer the right, but not the obligation, to buy an underlying asset at a predetermined price within a specific time period.

Stock Price

Stock Price is the cost of a single share of a company's stock, which is determined by the supply and demand for it in the marketplace.

Time To Expiration

The duration remaining until the expiration date of a financial instrument, such as an option or futures contract.

Stock Price

The current market price at which a share of a company's stock can be bought or sold.