Question

Which one of the following statements is true? Debt instruments offer residual claims to future cash payouts. Bonds with call provisions will have lower coupon rates than otherwise identical bonds. Bondholders enjoy a direct voice in company decisions. Bonds are low-risk investments that do well in inflationary periods. Preferred shareholders are the first investors to be repaid in bankruptcy liquidation. None of the options are correct.

Answer 1

The answer is: None of the options are correct.

Step-by-step explanation:

Debt instruments don´t offer residual claims to future cash payouts.

Bonds with call provisions don´t have lower coupon rates than otherwise identical bonds. Generally if the bond issuer decides to redeem the bond earlier they will pay the bondholder a premium over their face value.

Bondholders don´t enjoy a direct voice in company decisions. They have the right to receive financial statements of the company and in case of bankruptcy they hold first rights to the distribution of assets.

Bonds are low risk investments that don´t do well in inflationary periods. The inflation rate adjusts the real interest rates a bond will earn, sometimes turning them negative real interest rates.

Preferred shareholders are not the first investors to be repaid in bankruptcy liquidation. Bondholders are the first investors to be repaid in bankruptcy liquidation.