Which of the Following Statements Is Correct

Question 67

Multiple Choice

Which of the following statements is CORRECT? A) A bond is likely to be called if its coupon rate is below its YTM. B) A bond is likely to be called if its market price is below its par value. C) Even if a bond's YTC exceeds its YTM,an investor with an investment horizon longer than the bond's maturity would be worse off if the bond were called. D) A bond is likely to be called if its market price is equal to its par value. E) A bond is likely to be called if it sells at a discount below par.

Related questions

Q 68

Which of the following statements is CORRECT? A) Assume that two bonds have equal maturities and are of equal risk,but one bond sells at par while the other sells at a premium above par.The premium bond must have a lower current yield and a higher capital gains yield than the par bond. B) A bond's current yield must always be either equal to its yield to maturity or between its yield to maturity and its coupon rate. C) If a bond sells at par,then its current yield will be less than its yield to maturity. D) If a bond sells for less than par,then its yield to maturity is less than its coupon rate. E) A discount bond's price declines each year until it matures,when its value equals its par value.

Q 69

Assume that a noncallable 10-year T-bond has a 12% annual coupon,while a 15-year noncallable T-bond has an 8% annual coupon.Assume also that the yield curve is flat,and all Treasury securities have a 10% yield to maturity.Which of the following statements is CORRECT? A) If interest rates decline,the prices of both bonds would increase,but the 15-year bond would have a larger percentage increase in price. B) If interest rates decline,the prices of both bonds would increase,but the 10-year bond would have a larger percentage increase in price. C) The 10-year bond would sell at a discount,while the 15-year bond would sell at a premium. D) The 10-year bond would sell at a premium,while the 15-year bond would sell at par. E) If the yield to maturity on both bonds remains at 10% over the next year,the price of the 10-year bond would increase,but the price of the 15-year bond would fall.

Q 70

Which of the following statements is CORRECT? A) A zero coupon bond of any maturity will have more price risk than any coupon bond,even a perpetuity. B) If their maturities and other characteristics were the same,a 5% coupon bond would have more price risk than a 10% coupon bond. C) A 10-year coupon bond would have more reinvestment risk than a 5-year coupon bond,but all 10-year coupon bonds have the same amount of reinvestment risk. D) A 10-year coupon bond would have more price risk than a 5-year coupon bond,but all 10-year coupon bonds have the same amount of price risk. E) If their maturities and other characteristics were the same,a 5% coupon bond would have less price risk than a 10% coupon bond.