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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.

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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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