Which of the Following Statements Best Describes Callable Bonds

question 23

Multiple Choice

Which of the following statements best describes callable bonds?

• A) Two bonds have the same maturity and the same coupon rate. However, one is callable and the other is not. The difference in prices between the bonds will be greater if the current market interest rate is below the coupon rate than if it is above the coupon rate.
• B) Corporate treasurers dislike issuing callable bonds because these bonds may require the company to raise additional funds earlier than would be true if noncallable bonds with the same maturity were used.
• C) Two bonds have the same maturity and the same coupon rate. However, one is callable and the other is not. The difference in prices between the bonds will be greater if the current market interest rate is above the coupon rate than if it is below the coupon rate.
• D) The actual life of a callable bond will always be equal to or less than the actual life of a noncallable bond with the same maturity. Therefore, if the yield curve is upward sloping, the required rate of return will be lower on the callable bond.

---

Definitions:

Randomized Block Design

A statistical experiment design that aims to reduce the effects of variability among experimental units by grouping them into blocks.

SSB

In the context of ANOVA, SSB refers to the Sum of Squares Between groups, which helps in assessing the variability between different groups.

Fixed-Effects ANOVA

A statistical method used to analyze the differences among group means in a sample where the groups are defined by some fixed factor.

Random-Effects ANOVA

A statistical method that accounts for variability within and across groups when analyzing differences among multiple groups.