Which of the Following Statements Is Correct

question 48

Multiple Choice

Which of the following statements is correct?

• A) Other things held constant, a callable bond would have a lower required rate of return than a noncallable bond.
• B) Other things held constant, a corporation would rather issue noncallable bonds than callable bonds.
• C) Reinvestment rate risk is worse from a typical investor's standpoint than interest rate price risk.
• D) If a 10-year, R1,000 par, zero coupon bond were issued at a price which gave investors a 10 percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, we could be sure that the bond would sell at a premium over its R1,000 par value.
• E) If a 10-year, R1,000 par, zero coupon bond were issued at a price which gave investors a 10 percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, we could be sure that the bond would sell at a discount below its R1,000 par value.

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Definitions:

Per Annum

A Latin term meaning "per year," often used in financial contexts to describe rates or amounts calculated over a yearly basis.

Invested

Invested refers to the allocation of resources, usually money, into a financial venture with the expectation of receiving future returns.

Per Annum

Annually; indicating the occurrence, rate, or amount in a year.

Maturity Value

The amount payable to an investor at the end of a fixed-term investment including principal and interest.