Which of the following statements is CORRECT?

Question

A. If a 10-year, $1,000 par,zero coupon bondwere issued at a price that gave investors a 10% yield to maturity, and if interest rates then dropped to the point where rd= YTM = 5%, the bond would sell at a premium over its $1,000 par value.
B. If a 10-year, $1,000 par, 10% coupon bond were issued at par, 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 above its $1,000 par value.
C. Other things held constant, including the coupon rate, a corporation would rather issue noncallable bonds than callable bonds.
D. Other things held constant, a callable bond would have a lower required rate of return than a noncallable bond because it would have a shorter expected life.
E. Bonds are exposed to both reinvestment risk and price risk. Longer-term low-coupon bonds, relative to shorter-term high-coupon bonds, are generally more exposed to reinvestment risk than price risk.

Answer 1

Answer: B