Which of the Following Statements Is FALSE

question 35

Multiple Choice

Which of the following statements is FALSE?

• A)The holder of a callable bond faces reinvestment risk precisely when it hurts: when market rates are lower than the coupon rate she is currently receiving.
• B)When yields have risen,the issuer will not choose to exercise the call on the callable bond.
• C)The issuer will exercise the call option only when the prevailing market rate exceeds the coupon rate of the bond.
• D)A callable bond is relatively less attractive to the bondholder than the identical non-callable bond.

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Definitions:

Price Ceiling

A government-imposed limit on how high a price can be charged for a product, service, or resource, usually intended to protect consumers from high prices.

Market Equilibrium

A state in a market where the quantity of a good demanded by consumers equals the quantity supplied by producers, leading to a stable price.

Binding Constraint

A restriction or limitation that significantly impacts decision-making or the feasibility of certain actions within an economic model or real-world scenario.

Binding Price Ceiling

A government-imposed limit on the price of a good or service that is set below the market equilibrium price, leading to shortages.