Question

All else equal, the interest rate required on a callable bond will be __________ than the...

All else equal, the interest rate required on a callable bond will be __________ than the interest rate on a non-callable bond and the interest rate required on a convertible bond will be __________ than the interest rate required on a non-convertible bond.

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Answer #1

All else equal, the interest rate required on a callable bond will be Higher than the interest rate on a non-callable bond and the interest rate required on a convertible bond will be Lower than the interest rate required on a non-convertible bond.

If the interest rates in the market decreases company will call the bond therefore they require a higher return.

Convertible bonds can be converted into shares and therefore they require Lower interest rates compared to Non convertible Bonds.

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