Potential Buyers of ABC Corporation Bonds Are Not Concerned About

question 278

Multiple Choice

Potential buyers of ABC Corporation bonds are not concerned about ABC Corporation declaring bankruptcy. Potential buyers of XYZ Corporation bonds are concerned that XYZ Corporation may declare bankruptcy. Which of the following statements is correct?

• A)Other things equal, the interest rate on XYZ Corporation bonds will be high relative to the interest rate on ABC Corporation bonds.
• B)An ABC Corporation bond is a perpetuity, whereas an XYZ Corporation bond is not a perpetuity.
• C)XYZ Corporation bonds carry more interest-rate risk than do ABC Corporation bonds.
• D)All of the above are correct.

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