Which Statement Regarding Bonds Is True

question 2

Multiple Choice

Which statement regarding bonds is true?

• 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 r_d = 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.

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Definitions:

Moderate

Describes something, such as an opinion, climate, or behavior, that is not extreme or excessive; mild or within reasonable limits.

Cloudy Days

Days characterized by a significant coverage of the sky by clouds, often associated with overcast weather conditions.

Linear Association

A relationship between two variables that can be represented by a straight line on a graph.

Negative Association

A relationship between two variables in which one variable increases as the other decreases.