Which of the following statements is CORRECT? a. For a given firm, its debenture

Question

Which of the following statements is CORRECT?

a. For a given firm, its debentures are likely to have a lower yield to maturity than its mortgage bonds. b. When large firms are in financial distress, they are almost always liquidated, whereas smaller firms are generally reorganized. c. The price of a discount bond will increase over time, assuming that the bond's yield to maturity remains constant. d. The total return on a bond during a given year is based only on the coupon interest payments received. e. All else equal, a bond that has a coupon rate of 10% will sell at a discount if the required return for bonds of similar risk is 8%.

Explanation / Answer

The price of a discount bond will increase over time, assuming that the bond's yield to maturity remains constant.

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