Tucker Corporation Is Planning to Issue New 20-Year Bonds

question 42

Multiple Choice

Tucker Corporation is planning to issue new 20-year bonds.The current plan is to make the bonds non-callable,but this may be changed.If the bonds are made callable after 5 years at a 5% call premium,how would this affect their required rate of return?

• A) Because of the call premium,the required rate of return would decline.
• B) There is no reason to expect a change in the required rate of return.
• C) The required rate of return would decline because the bond would then be less risky to a bondholder.
• D) The required rate of return would increase because the bond would then be more risky to a bondholder.
• E) It is impossible to say without more information.

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Definitions:

Acid Catalyst

A substance that increases the rate of a chemical reaction through donation of protons (H+ ions) without undergoing any permanent chemical change itself.

Acyclic Compound

A chemical compound that does not contain any rings in its structure, consisting of linear or branched chains of atoms.

Imine

A compound characterized by a nitrogen atom double-bonded to a carbon atom, often resulting from the condensation of a primary amine and an aldehyde or ketone.

Reagents

Substances or compounds added in a chemical reaction to bring about a reaction or to see if a reaction occurs.