FIN 534 RANK Imagine Your Future /fin534rank.com FIN 534 RANK Imagine Your Future /fin534rank.com - Page 79

4) The present value of DUE exceeds the present value of ORD, and the future value of DUE also exceeds the future value of ORD. 5) If the going rate of interest decreases from 10% to 0%, the difference between the present value of ORD and the present value of DUE would remain constant. 16. Amram Inc. can issue a 20-year bond with a 6% annual coupon. This bond is not convertible, is not callable, and has no sinking fund. Alternatively, Amram could issue a 20-year bond that is convertible into common equity, may be called, and has a sinking fund. Which of the following most accurately describes the coupon rate that Amram would have to pay on the convertible, callable bond? 1. 2. 3. 4. 5. Exactly equal to 6%. It could be less than, equal to, or greater than 6%. Greater than 6%. Exactly equal to 8%. Less than 6%. 17. A Treasury bond has an 8% annual coupon and a 7.5% yield to maturity. Which of the following statements is CORRECT? 1 The bond has a current yield greater than 8 percent. 2 The bond sells at a price above par. 3. If the yield to maturity remains constant, the price of the bond is expected to fall over time. 4. Statements b and c are correct. 5 All of the statements above are correct.