Which of the Following Statements Is Correct

question 158

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 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 then be liquidated by the trustee, which uses the proceeds to pay bondholders, unpaid wages, taxes, and lawyer 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.

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Definitions:

Monopolistically Competitive Firms

Monopolistically competitive firms operate in a market structure where many companies sell products that are similar but not identical, leading to some degree of market power.

Long-Run Equilibrium

The intersection of the AD and LRAS curves, when wages and prices have adjusted to their final equilibrium levels.

Marginal Cost

The cost associated with producing one additional unit of a product, important for making efficient production and pricing decisions.

Monopolistic Competition

A market structure where many firms sell products that are similar but not identical, leading to competition based on product differentiation.