Which of the Following Statements Is Most Correct

question 69

Multiple Choice

Which of the following statements is most correct?

• A) All else equal, a 1-year bond will have a higher (i.e., better) bond rating than a 20-year bond.
• B) A 20-year bond with semiannual interest payments has higher price risk (i.e., interest rate risk) than a 5-year bond with semiannual interest payments.
• C) 10-year zero coupon bonds have higher reinvestment rate risk than 10-year, 10 percent coupon bonds.
• D) If a callable bond is trading at a premium, then you would expect to earn the yield-to-maturity.
• E) Statements a and b are correct.

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Definitions:

Operating Income

Earnings before interest and taxes (EBIT), representing the profit from core business operations excluding non-operating income and expenses.

Economic Value Added

A measure of a company's financial performance based on the residual wealth calculated by deducting cost of capital from its operating profit.

Capital Employed

The total value of all assets used in a business to generate profits, typically calculated as equity plus non-current liabilities.

Economic Value Added

A financial performance metric that calculates the value a company generates from its capital investments, beyond the cost of capital.