Question

. oWhich of the following statements is CORRECT O a other things held constant, a callable bond should have a lower yield to matunity than a ncncallable bond O b. 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 10. O 11. Od. O d income bo s must pay interest only ส the compare erns the nterest. Thus the e scurtes cannot ba trupe a company prior to ther maturity and this makes them safer to the isang corporation than "regular" bonds 12. O 13. O 14. O Ο e.Afirm with a sinking fund that gives it the doce of caling the f coupon rate exceeded the coing interest rate. 15. O 16 O 9 8 5 6 4 2

Answer 1

a. false because callable bonds will sell for a higher yields than a noncallable bonds, if all other things are held constant.

b. correct.

c. false. As Interest expense accures for tax purposes on zero coupon   bonds, so firms can realize the tax savings from the issuing debt.

d. correct.

e. false. Firms prefer the less expensive options of calling the bond