Which of the Following Statements Is CORRECT

question 70

Multiple Choice

Which of the following statements is CORRECT?

• 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) A callable 10-year,10% bond should sell at a higher price than an otherwise similar noncallable bond.
• C) 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.
• D) 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.
• E) 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.

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Definitions:

Standard Deviation

The measure of the dispersion or variation in a set of numbers, indicating how widely individuals within a dataset are spread from the mean.

Variance

A measure of how spread out a set of data is, calculated as the average of the squared differences from the mean.

Measurements

The size, length, or amount of something, determined by comparing it with a standard unit.

Birth Weights

Refers to the weight of a baby at the time of birth, an important factor in neonatal and future health.