question archive Select the correct statement
Select the correct statement
Subject:FinancePrice:2.86 Bought3
Select the correct statement.
A. The call provision allows the company the option to buy back the bond from the investor before it matures.
B. Protective covenants protect the rights of the company in a bond offering.
C. The rights of the bondholder are stated in the proxy statement.
D. A sinking fund is used by firms to fund emergency expenses.
If a bond has a coupon rate of 5% and the market rate of interest (the yield to maturity) is 3%, the bond will sell ______ and the price of the bond will ____ as the bond approaches maturity.
A. at a premium; decrease
B. at a premium; not change
C. at a discount; decrease
D. at a discount; decrease
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1)Correct statement is
The call provision allows the company the option to buy back the bond from the investor before it matures.
A callable bond can be called by the issuer before maturity if the market interest rates are lower than the coupon rate of the bond.
If a bond has a coupon rate of 5% and the market rate of interest (the yield to maturity) is 3%, the bond will sell at a premium and the price of the bond will decrease as the bond approaches maturity.
If YTM<Coupon Rate, bond sells at a premium
And as bond will approach maturity future coupon payments will decrease and therefore bond value will also decrease
