Which of the Following Statements Is FALSE

question 71

Multiple Choice

Which of the following statements is FALSE?

• A) To understand how call provisions affect the price of a bond, we first need to consider when an issuer will exercise its right to call the bond.
• B) If the call provision offers a cheaper way to retire the bonds, the issuer will forgo the option of purchasing the bonds in the open market and call the bonds instead.
• C) When bond yields have increased, by exercising the call on the callable bond and then immediately refinancing, the issuer can lower its borrowing costs.
• D) An issuer can always retire one of its bonds early by repurchasing the bond in the open market.

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Definitions:

Tax Rate

The proportion of one's earnings or company profits that is required to be paid as tax.

Degree Of Financial Leverage (DFL)

A measure that evaluates the sensitivity of a company's earnings per share to fluctuations in its operating income, indicating financial risk.

Interest

The return on a debt investment.

Breakeven Volume

The number of units a company must sell to cover its fixed and variable costs, with no profit and no loss.