Which One of the Following Statements Is True

question 126

Multiple Choice

Which one of the following statements is true?

• A) Corporate bonds do not have a maturity date.
• B) The maturity dates for corporate bonds are generally less than a year.
• C) Corporate bonds do not have any default risk.
• D) Corporate bonds are a form of equity.
• E) Long-term corporate bonds have maturities over 15 years.

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Definitions:

Certainty Equivalent Approach

A financial analysis method that adjusts uncertain cash flows to reflect the risk-free cash flow an investor would accept in place of taking a risk.

Cost Of Capital

The earnings rate a firm must achieve on its investment endeavors to preserve its market value and draw in capital.

Discount Rate

In discounted cash flow analysis, it's the rate of interest used to determine today's value of cash flows expected in the future.

Certainty Equivalent Approach

A method used in capital budgeting and investment finance that adjusts the future cash flows of risky investments to reflect their riskiness as compared to a certain cash flow.