Amram Inc. can issue a 20-year bond with a 6% annual coupon. This bond is not convertible, is not callable, and has no sinking fund. Alternatively, Amram could issue a 20-year bond that is convertible into common equity, may be called, and has a sinking fund. Which of the following most accurately describes the coupon rate that Amram would have to pay on the convertible, callable bond a Exactly equal to 6%. b It could be less than, equal to, or greater than 6%. c Greater than 6%. d Exactly equal to 8%. e Less than 6%

C. Greater than 6%

Explanation:

C. Greater than 6%

Callable bonds are bonds that gives the issuer a right or privilege to redeem before the bond reaches it's maturity period. When interest rate decreases, the price of a bond increases which may induce the issuer of a bond to redeem the bond.

Callable bonds have a higher interest rate. The Higher interest rate is used to attract investors.

E) Less than 6%

Explanation:

Depending on the specific terms of the bond issuance, the interest rates could be higher, equal or lower, but generally in real life callable bonds have a lower interest rate than similar non-callable bonds.

Bondholders usually face two important risks (besides default):

this conflict is person vs. society

if you need further explanations, comment below!

hope this ! < 3