FIN 534 RANK Imagine Your Future /fin534rank.com FIN 534 RANK Imagine Your Future /fin534rank.com - Page 81

All else equal, senior debt generally has a lower yield to maturity than subordinated debt. An indenture is a bond that is less risky than a mortgage bond. The expected return on a corporate bond will generally exceed the bond's yield to maturity. If a bond’s coupon rate exceeds its yield to maturity, then its expected return to investors exceeds the yield to maturity. Under our bankruptcy laws, any firm that is in financial distress will be forced to declare bankruptcy and then be liquidated. 21. A 15-year bond with a face value of $1,000 currently sells for $850. Which of the following statements is CORRECT? 1. The bond's yield to maturity is greater than its coupon rate. 2. If the yield to maturity stays constant until the bond matures, the bond's price will remain at $850. 3. The bond's current yield is equal to its coupon rate. 4. The bond's current yield exceeds its yield to maturity. 5. The bond's coupon rate exceeds its current yield. 22. Which of the following statements is CORRECT? 1) Sinking fund provisions never require companies to retire their debt; they only establish “targets” for the company to reduce its debt over time. 2) A sinking fund provision makes a bond more risky to investors at the time of issuance.