Which of the Following Statements Is CORRECT

question 82

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 use of 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 be liquidated by the trustee,who uses the proceeds to pay bondholders,unpaid wages,taxes,and legal 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.
• E) A firm with a sinking fund that gives 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.

---

Definitions:

Employee Retirement Income Security Act

A federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans.

Pension Plans

Financial arrangements that provide retirees with income during retirement, typically funded by employers or the government.

Private Industry

The segment of the economy that is operated by individuals or corporations for profit and is not directly controlled by the government.

Family and Medical Leave Act

A US federal law requiring covered employers to provide employees with job-protected and unpaid leave for qualified medical and family reasons.