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Multiple choice question on bonds

Which one of the following statements is most correct?

a. All else equal, a bond that has a coupon rate of 10% will sell at a discount if the required rate of return for a bond of similar risk is 8%.

b. Debentures generally have a higher yield to maturity relative to mortgage bonds.

c. If there are two bonds with equal (time to) maturity and credit (default) risk, the bond which is callable will have a higher yield to maturity than the bond which is non - callable.

d. Choices a and c are correct.

e. Choices b and c are correct.

Discuss fully the reasons for your choice, the discuss briefly why the other choices are not correct.

Solution Preview

Which one of the following statements is most correct?

a. All else equal, a bond that has a coupon rate of 10% will sell at a discount if the required rate of return for a bond of similar risk is 8%.

b. Debentures generally have a higher yield to maturity relative to mortgage bonds.

c. If there are two bonds with equal (time to) maturity and credit (default) risk, the bond which is callable will have a higher yield to maturity than the bond which is non - callable.

d. Choices a and c are correct.

e. Choices b and c are correct.

Discuss fully the reasons for your choice, the discuss briefly why the other choices are not correct.

Answer: Choice e is correct

e. Choices b and c are correct

Since b and c are correct as shown below.

a.All else equal, a bond that has a coupon ...

Solution Summary

Answers a Multiple choice question on bonds.

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