(I)Callable Bonds Usually Have a Higher Yield Than Comparable Noncallable

question 59

Multiple Choice

(I) Callable bonds usually have a higher yield than comparable noncallable bonds.
(II) Convertible bonds are attractive to bondholders and sell for a higher price than comparable nonconvertible bonds.

• A) (I) is true, (II) false.
• B) (I) is false, (II) true.
• C) Both are true.
• D) Both are false.

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Definitions:

Constant Growth Rate

The steady rate at which a company’s dividends are expected to grow, often used in valuing stocks with the Gordon Growth Model.

Expected Value

The weighted average of all possible values for a given set of probabilities, used in statistics and financial decision making.

Firm's Stock

The shares of ownership in a corporation that represent a claim on the company's earnings and assets.

Dividend Yield

A financial ratio that shows how much a company pays out in dividends each year relative to its stock price, often used by investors to gauge the income-generating ability of a stock.