Which of the Following Statements Is Correct

question 15

Multiple Choice

Which of the following statements is correct?

• A) One DISADVANTAGE of zero coupon bonds is that the issuing firm cannot realize any tax savings from the debt until the bonds mature.
• B) Other things held constant, a callable bond should have a lower yield to maturity than a noncallable bond.
• C) Once a firm declares bankruptcy, it must then be liquidated by the trustee, which uses the proceeds to pay bondholders, unpaid wages, taxes, and lawyer fees.
• D) 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.

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Definitions:

Financial Market

The marketplace where buyers and sellers interact to trade financial instruments, such as stocks, bonds, currencies, and derivatives, often within an institutional framework.

Crowding-Out

A situation where increased government spending leads to a reduction in private sector spending.

Government Purchases

Expenditures made by the government for goods and services that are necessary for the public sector and to support economic activity.

National Output

The total value of goods and services produced by a country's economy over a specific period of time. It's synonymous with gross domestic product (GDP).