One of the above is the most accurate statement? a. In general, distant cash flows are riskier than near-term cash flows. Additionally, a 20-year bond that is callable after five years would have a shorter projected duration, if not none at all, than an otherwise comparable noncallable 20-year bond. Assuming all other features are comparable, investors can demand a lower rate of return on the callable bond than on the noncallable bond. b. The average period of a noncallable 20-year bond is usually equivalent to or greater than the expected life of an otherwise similar callable 20-year bond. Additionally, the interest rate danger that borrowers experience increases with the maturity of a bond. Thus, where all other factors remain stable, callable bonds subject borrowers to fewer interest rate danger than noncallable bonds. c. Both a and b are true. d. None of the above claims are true.
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
43. One of the above is the most accurate statement?
a. In general, distant cash flows are riskier than near-term cash flows.
Additionally, a 20-year bond that is callable after five years would have a shorter projected duration, if not none at all, than an otherwise comparable noncallable 20-year bond. Assuming all other features are comparable, investors can demand a lower
b. The average period of a noncallable 20-year bond is usually equivalent to or greater than the expected life of an otherwise similar callable 20-year bond. Additionally, the interest rate danger that borrowers experience increases with the maturity of a bond. Thus, where all other factors remain stable, callable bonds subject borrowers to fewer interest rate danger than noncallable bonds.
c. Both a and b are true.
d. None of the above claims are true.
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