Which of the Following Statements Is CORRECT

question 83

Multiple Choice

Which of the following statements is CORRECT?

• A) if a 10-year, $1,000 par, 10% coupon bond were issued at par, and if interest rates then dropped to the point where rd = ytm = 5%, we could be sure that the bond would sell at a premium above its $1,000 par value.
• B) other things held constant, a corporation would rather issue noncallable bonds than callable bonds.
• C) other things held constant, a callable bond would have a lower required rate of return than a noncallable bond.
• D) reinvestment rate risk is worse from an investor's standpoint than interest rate price risk if the investor has a short investment time horizon.
• E) if a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a 10% yield to maturity, and if interest rates then dropped to the point where rd = ytm = 5%, the bond would sell at a premium over its $1,000 par value.

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Definitions:

Present Value

A financial concept that discounts future cash flows to their value today, considering the time value of money to assess investment potential.

Resource's Current Price

The present market price of a particular resource or commodity, reflecting its current demand and supply.

Extraction

The process of removing or obtaining a resource, material, or substance from its source or origin.

User Cost

The opportunity cost of using a durable good or natural resource, representing the foregone benefits from not preserving the asset for future use.