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:

Tympanectomy

A surgical procedure involving the removal of all or part of the eardrum, often to treat infections or other ear problems.

Ossicles

The three small bones in the middle ear known as the malleus, incus, and stapes, which transmit sound vibrations to the inner ear.

Incus

A small anvil-shaped bone in the middle ear that transmits sound vibrations from the malleus to the stapes.

Cerumen

A yellowish waxy substance secreted in the ear canal, known as earwax.