Question

Question 9 "Which of the following would allow a corporation to issue a bond at a lower coupon rate, all else equal?" The addition of a call provision to the bond O A deterioration in the corporation s credit quality O An increase in the expected inflation rate O None of the options are correct.

Answer 1

Question 9 - Non eof the above. Reason as below -

IF the bond is callable, the rate is higher as the corporate has option to refinance the debt at lower rate in future. This reduces surety of investors and as compensation, they require a higher rate at present date

IF the credit quality falls, it will result in rating downgrade and also increase the risk of defualt. A rise in default risk will lead to higher credit risk reward requirement by investor, thus increasing rate.

IF expected inflation rate is higher, then the investors will expect the entity to price the bond at higher interest rate so as to give them positive Real returns

Question 10 - Valuation of bond is -  693.25$