Tucker Corporation is planning to issue new 20-year bonds. The current plan is t

Question

Tucker Corporation is planning to issue new 20-year bonds. The current plan is to make the bonds noncallable, but this may be changed. If the bonds are made callable after 5 years at a 5% call premium, how would this affect their requird rate of return?
A. It is impossile to say without more information.
B. The required rate of return would decline because the bond would then be less risky to a bondholde.
C. Because of the call premium, the required rate of return would decline.
D. The required rate of return would increase because the bond would then be more risky to thebondholder.
E. There is no reason to expect a change in the required rate of return

Explanation / Answer

D. Callable increases the risk the investor will have to reinvest at a lower interest rate.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.