Amram IncCan Issue a 20-Year Bond with a 6% Annual Coupon

question 14

Multiple Choice

Amram Inc.can issue a 20-year bond with a 6% annual coupon at par.This bond is not convertible,not callable,and has no sinking fund.Alternatively,Amram could issue a 20-year bond that is convertible into common equity,may be called,and has a sinking fund.Which of the following most accurately describes the coupon rate that Amram would have to pay on the second bond,the convertible,callable bond with the sinking fund,to have it sell initially at par?

• A) The coupon rate should be exactly equal to 6%.
• B) The coupon rate could be less than,equal to,or greater than 6%,depending on the specific terms set,but in the real world the convertible feature would probably cause the coupon rate to be less than 6%.
• C) The rate should be slightly greater than 6%.
• D) The rate should be over 7%.
• E) The rate should be over 8%.

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