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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.
3) Sinking fund provisions sometimes turn out to adversely affect
bondholders, and this is most likely to occur if interest rates decline after
the bond was issued.
4)
Most sinking funds require the issuer to provide funds to a trustee,
who holds the money so that it will be available to pay off bondholders
when the bonds mature.
5) If interest rates increase after a company has issued bonds with a
sinking fund, the company will be less likely to buy bonds on the open
market to meet its sinking fund obligation and more likely to call them
in at the sinking fund call price.
23. Assume that all interest rates in the economy decline from 10% to
9%. Which of the following bonds would have the largest percentage
increase in price?
1. A 10-year bond with a 10 percent coupon.
2. An 8-year bond with a 9 percent coupon.