Which of the following statements is CORRECT?
A. 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.
B. Other things held constant, a corporation would rather issue noncallable bonds than callable bonds.
C. Other things held constant, a callable bond would have a lower required rate of return than a noncallable bond.
D. Reinvestment rate risk is worse from an investor's standpoint than interest rate price risk if the investor has a short investment time horizon.
E. If a 10-year, $1,000 par, zero coupon bond were 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.
Answer: A
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What is multilevel security?
Penney Corporation acquires 30% of the outstanding voting common shares of the Instat Corporation for $600,000 . Penney Corporation acquires the investment in Instat Corporation by buying previously issued shares of Instat Corporation from other investors. Between the time of the acquisition and the end of Penney Corporation's next accounting period, Instat Corporation reports earnings of $80,000
. Penney Corporation records the following journal entry: a. Equity in Earnings of Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . 24,000 Investment in Stock of Instat Corporation . . . . . . . . . . . . . . . . . .24,000 b. Investment in Stock of Instat Corporation . . . . . . . . . . . . . . . 24,000 Equity in Earnings of Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,000 c. Equity in Earnings of Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000 Investment in Stock of Instat Corporation . . . . . . . . . . . . . . . . . 80,000 d. Investment in Stock of Instat Corporation . . . . . . . . . . . . . . . 80,000 Equity in Earnings of Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000 e. Investment in Stock of Instat Corporation . . . . . . . . . . . . . . . 24,000 Investment Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,000