Which of the Following Statements Is CORRECT

question 42

Multiple Choice

Which of the following statements is CORRECT?

• A) other things held constant, a callable bond should have a lower yield to maturity than a noncallable bond.
• B) once a firm declares bankruptcy, it must then be liquidated by the trustee, who uses the proceeds to pay bondholders, unpaid wages, taxes, and lawyer fees.
• C) 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.
• D) a firm with a sinking fund that gave it the choice of calling the required bonds at par or buying the bonds in the open market would generally choose the open market purchase if the coupon rate exceeded the going interest rate.
• E) one disadvantage of zero coupon bonds is that the issuing firm cannot realize any tax savings from the debt until the bonds mature.

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Definitions:

Activity Level

A measure of the amount of work or operations conducted by a business or organization during a specific period.

Activity Index

A measure used to understand the level of activity in a particular area, such as production or sales, often used in planning and forecasting.

Contribution Margin

The difference between sales revenue and variable costs, used to cover fixed costs and generate profit.

Target Net Income

The specific amount of net income that a company aims to achieve within a certain period.