Which of the Following Statements Is CORRECT

question 25

Multiple Choice

Which of the following statements is CORRECT?

• A) Other things held constant, a callable bond should have a lower yield to maturity than a noncallable bond.
• B) Once a firm declares bankruptcy, it must then be liquidated by the trustee, who uses the proceeds to pay bondholders, unpaid wages, taxes, and lawyer fees.
• C) Income bonds must pay interest only if the company earns the interest.Thus, these securities cannot bankrupt a company prior to their maturity, and this makes them safer to the issuing corporation than "regular" bonds.
• D) A firm with a sinking fund that gave it the choice of calling the required bonds at par or buying the bonds in the open market would generally choose the open market purchase if the coupon rate exceeded the going interest rate.
• E) One disadvantage of zero coupon bonds is that the issuing firm cannot realize any tax savings from the debt until the bonds mature.

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Definitions:

Cultural Analysis

The examination and interpretation of the behaviors, values, and artifacts of a society to understand its culture.

Shared Values

Core beliefs or principles that are collectively held and guide the behavior and decision-making within an organization or society.

Motivational Mechanism

The process or system by which motivation is generated or regulated within individuals or groups.

Agency Law

The area of law that deals with the relationship between agents and principals, including the duties and rights that arise from such relationships.