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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.