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Student Name (Please Print) 41) As a general rule, a company's debentures have higher required interest rates than its mortgage bonds because mortgage bonds are backed by specific assets while debentures are unsecured. A. True B. False 42) A bond has a $1,000 par value, makes annual interest payments of $100, has 5 years to maturity, cannot be called, and is not expected to default. The bond should sell at a premium if market interest rates are below 10% and at a discount if interest rates are greater than 10% A True B. False 43) Which of the following statements is CORRECT? A. 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. B. 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 C. A sinking fund provision makes a bond more risky to investors at the time of issuance. D. Sinking fund provisions never require companies to retire their debt; they only establish "targets for the company to reduce its debt over time. E. 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. 44) Tucker Corporation is planning to issue new 20-year bonds. The current plan is to make the bonds non-callable, but this may be changed. If the bonds are made callable after 5 years at a 5% call premium, how would this affect their required rate of return? A. Because of the call premium, the required rate of return would decline. B. There is no reason to expect a change in the required rate of return. C. The required rate of return would decline because the bond would then be less risky to a bondholder. D. The required rate of return would increase because the bond would then be more risky to a bondholder. E. It is impossible to say without more information Page 10 of 12