Which One of the Following Statements Is Correct Concerning a Callable

question 80

Multiple Choice

Which one of the following statements is correct concerning a callable bond that is currently selling below face value? Assume there is no risk of default. Also assume the issuer only calls bonds when they can be refinanced at a lower rate of interest.

• A)The bond will most likely be called while the bonds are selling at a discount.
• B)The yield to maturity is presently more relevant to an investor than the yield to call.
• C)The bond is likely going to be called due to the low current interest rates.
• D)The bond is currently paying a premium.
• E)The bond issue will most likely be replaced with a new bond issue.

---

Definitions:

Stock Repurchase

An action taken by a corporation to repurchase its own shares from the market, thereby decreasing the total number of shares available.

Residual Dividend Policy

A financial strategy where dividends paid to shareholders are based on the earnings left after all operational and capital expenses, as well as growth investments, have been covered.

Target Capital Structure

The mix of debt, preferred stock, and common equity that a company aims to hold to minimize its cost of capital and maximize its market value.

Forecasted Net Income

Forecasted net income is an estimate of a company's future profits after all expenses and taxes have been subtracted from revenues.