Q 53

Which of the following statements is CORRECT? A) If a 10-year,$1,000 par,zero coupon bond were issued at a price that gave investors a 10% yield to maturity,and if interest rates then dropped to the point where rd = YTM = 5%,the bond would sell at a premium over its $1,000 par value. B) If a 10-year,$1,000 par,10% coupon bond were issued at par,and if interest rates then dropped to the point where rd = YTM = 5%,we could be sure that the bond would sell at a premium above its $1,000 par value. C) Other things held constant,including the coupon rate,a corporation would rather issue noncallable bonds than callable bonds. D) Other things held constant,a callable bond would have a lower required rate of return than a noncallable bond because it would have a shorter expected life. E) Bonds are exposed to both reinvestment risk and price risk.Longer-term low-coupon bonds,relative to shorter-term high-coupon bonds,are generally more exposed to reinvestment risk than price risk.

Multiple Choice