Which of the Following Statements Is CORRECT

question 84

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, who 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.
• E) A firm with a sinking fund that gave it the choice of calling the required bonds at par or buying the bonds in the open market would generally choose the open market purchase if the coupon rate exceeded the going interest rate.

Identify examples of black market transactions resulting from price controls.

Assess the implications of price controls on consumer and producer surplus.

Understand specific inefficiencies caused by binding price ceilings and floors, like persistent shortages and surpluses.

Identify the conditions under which price controls (ceilings and floors) are considered binding.

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Definitions:

Legal Price

A price that is established by law or regulation, rather than determined by the market.

Total Surplus

The sum of consumer surplus and producer surplus, reflecting the total net benefit to society from the production and consumption of goods or services.

Quantity Demanded

The specific amount of a good or service that consumers are willing and able to purchase at a given price, during a particular period.

Quantity Supplied

The amount of a good or service that producers are willing and able to offer for sale at a particular price.