Which of the Following Statements Is CORRECT

question 25

Multiple Choice

Which of the following statements is CORRECT?

• A) Other things held constant, a callable bond should have a lower yield to maturity than a noncallable bond.
• B) 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.
• C) 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.
• D) 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.
• E) One disadvantage of zero coupon bonds is that the issuing firm cannot realize any tax savings from the debt until the bonds mature.

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Definitions:

Summer Vacations

A period during the summer months where individuals take a break from work or school activities, often involving travel or leisure activities.

Supply Curve

A graphical representation showing the relationship between the price of a good or service and the quantity of that good or service that suppliers are willing and able to provide in the market.

Canadian Goods

Products manufactured, produced, or grown in Canada.

Demand-for-Pounds Curve

A graphical representation showing the relationship between the exchange rate of the British Pound and the quantity of the Pound demanded by the market.