Which of these five statement is the most correct: 1. Other things held constant, a callable bond would have a lower required rate of return than a noncallable bond. 2. Other things held constant, a corporation would rather issue noncallable bonds than callable bonds. 3. Reinvestment rate risk is worse from a typical investor's standpoint than interest rate risk. 4. If a 10-year, R1 000 par, zero coupon bond were issued at a price which gave investors a 10 percent rate of return, 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 over its R1 000 par value. 5. If a 10-year, R1 000 par, zero coupon bond were issued at a price which gave investors a 10 percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, we could be sure that the bond would sell at a discount below its R1 000 par value.
Which of these five statement is the most correct:
1. Other things held constant, a callable bond would have a lower required
2. Other things held constant, a corporation would rather issue noncallable bonds than callable bonds.
3. Reinvestment rate risk is worse from a typical investor's standpoint than interest rate risk.
4. If a 10-year, R1 000 par, zero coupon bond were issued at a price which gave investors a 10 percent rate of return, 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 over its R1 000 par value.
5. If a 10-year, R1 000 par, zero coupon bond were issued at a price which gave investors a 10 percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, we could be sure that the bond would sell at a discount below its R1 000 par value.
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