2. Which of the following statements regarding bond terminologies is INCORRECT?

Question

2. Which of the following statements regarding bond terminologies is INCORRECT?
A.
The written, legally binding agreement between the corporate borrower and
the lender detailing the terms of a bond issue is called the indenture.

B. The unsecured long-term debts of a firm are commonly called debentures.   
C.
A special account that sets aside periodic payments for bond redemption is
called a sinking fund.

D.
An agreement giving the bond issuer the option to repurchase the bond at a
specified price prior to maturity is called the zero provision.

Which of the following statements regarding bond trading is INCORRECT?
A. The long-term bonds issued by the U.S. government are called Treasury Bills.
B. The long-term bonds issued by state and local governments in the United
States are called municipal bonds.   
C. A bond that makes no coupon payments (and thus is initially priced at a deep
discount) is called a zero coupon bond.   
D. The price a dealer is willing to pay for a security is called the bid price.

Explanation / Answer

Answer:

D.
An agreement giving the bond issuer the option to repurchase the bond at a
specified price prior to maturity is called the zero provision.

Reason:

It is incorrect because An agreement giving the bond issuer the option to repurchase the bond at a specified price prior to maturity is called Bond Call option.

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