2. Which of the following statements is most correct?

a. Other things held constant, a callable bond would have a lower required rate of return than a

noncallable bond.

b. Other things held constant, a corporation would rather issue noncallable bonds than callable

bonds.

c. Reinvestment rate risk is worse from a typical investor's standpoint than interest rate risk.

d. If a 10-year, $1,000 par, zero coupon bond were issued at a price which gave investors a 10

percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, we

could be sure that the bond would sell at a premium over its $1,000 par value.

e. If a 10-year, $1,000 par, zero coupon bond were issued at a price which gave investors a 10

percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, we

could be sure that the bond would sell at a discount below its $1,000 par value.