CHAPTER 11 & 12 Question 5 Assume that an outstanding seven-year bond has $1,000 par value, a coupon rate of 10%, and five years remaining to maturity. If the required rate of return on similar bonds of equal risk is 5%, the bond will sell at which of the following? A premium A discount At par value At $500 ($100 annual interest payments × 5 years to maturity) The bond cannot be sold again since it is already outstanding Question 6 Which of the following are basic sources (forms) of capital? Debt Equity Leases Convertible bonds Answers a. and b. are both correct Question 7 Which of the following statements is most correct ? The interest rate on a new issue of callable bonds is likely to exceed that on a similar new issue of noncallable bonds. The interest rate on a new issue of noncallable bonds is likely to exceed that on a similar new issue of callable bonds. Noncallable bonds are riskier to the investor, while callable bonds are riskier to the issuer. There is no difference in risk to the investor between similar callable and noncallable bonds.
CHAPTER 11 & 12 The interest rate on a new issue of callable bonds is likely to be equal to that on a similar new issue of noncallable bonds.
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