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:

Digoxin

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The circulation of blood from the heart to the lungs and back, where blood is oxygenated and carbon dioxide is removed.

Tetralogy of Fallot

A congenital heart defect comprised of four anatomical abnormalities of the heart, affecting normal blood flow through the heart.