Nicholas Industries Can Issue a 20-Year Bond with a 6

question 40

Multiple Choice

Nicholas Industries can issue a 20-year bond with a 6% annual coupon.This bond is not convertible, is not callable, and has no sinking fund.Alternatively, Nicholas could issue a 20-year bond that is convertible into common equity, may be called, and has a sinking fund.Which of the following most accurately describes the coupon rate that Nicholas would have to pay on the convertible, callable bond?

• A) It could be less than, equal to, or greater than 6%.
• B) Greater than 6%.
• C) Exactly equal to 8%.
• D) Less than 6%.
• E) Exactly equal to 6%.

---

Definitions:

Total Revenue

The total amount of money generated by a company from its business activities, before any expenses are subtracted.

Fixed Costs

Expenses that do not change with the level of production or sales in the short term, such as rent, salaries, and insurance.

Variable Costs

Costs that vary directly with the level of production or sales, such as materials and labor.

Corporate Tax Rate

The percentage of a corporation's profits that is paid to the government as tax.