Which of the Following Statements Is Correct

question 158

Multiple Choice

Which of the following statements is correct?

• A)One disadvantage of zero coupon bonds is that the issuing firm cannot realize any tax savings from the debt until the bonds mature.
• B)Other things held constant, a callable bond should have a lower yield to maturity than a noncallable bond.
• C)Once a firm declares bankruptcy, it must then be liquidated by the trustee, which uses the proceeds to pay bondholders, unpaid wages, taxes, and lawyer fees.
• D)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.

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Definitions:

Binding Price Floor

A government-imposed price control that sets a minimum price for a good or service above the equilibrium price, leading to excess supply.

Surplus

The excess of production or supply over demand, often leading to lower prices or wasted resources if not managed effectively.

Binding Price Floor

A government-imposed price control or limit on how low a price can be charged for a commodity, set above the equilibrium price, leading to a surplus of the product.

Surplus

A situation where the quantity of a product or service exceeds the quantity demanded, often leading to lower prices or wasted resources.