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Problem: describe how you reached the answer or show your work if a mathematical calculation is needed, or both.

Which of the following statements is CORRECT?

a. Two bonds have the similar maturity and the same coupon rate. But, one is callable and the other is not. The distinction in prices between the bonds will be greater when the current market interest rate is below the coupon rate than when it is above the coupon rate.

b. A callable 10-year, 10% bond must sell at a higher price than an otherwise same no callable bond.

c. Corporate treasurers dislike issuing callable bonds since these bonds might need the company to increase additional funds earlier than would be true when no callable bonds with the same maturity were employed.

d. Two bonds have same maturity and the same coupon rate. But, one is callable and the other is not. The distinction in prices between the bonds will be greater when the current market interest rate is above the coupon rate than when it is below the coupon rate.

e. The actual life of the callable bond will always be equivalent to or less than the actual life of a no callable bond with same maturity. Hence, if the yield curve is upward sloping, the required rate of the return will be lower on callable bond.

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M94009

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