90.2K

Verified Solution

Link Copied!

I just need explanation. when you choose one correct answer explain why the answer choice is correct and why other answer choices are wrong.

1. Which one of the following statements is true? A. After issue, the market price of a fixed-rate bond can differ substantially from its par value B. Bonds with call provisions will have lower coupon rates than otherwise identical bonds C. Common shareholders are the first investors to be repaid in bankruptcy liquidation D. Debt instruments offer residual claims to future cash payouts 2. Which one of the following statements is true? A. Bondholders enjoy a direct voice in company decisions B. Investment-grade bonds are usually defined as bonds with ratings of B or higher C. Preferred shareholders are the first investors to be repaid in bankruptcy liquidation D. Junk bonds are below investment grade. 3. Which of the following statements regarding junk bonds is true? A. Junk bonds typically offer lower yields to maturity than investment-grade bonds. B. In case of bankruptcy, junk bonds have higher priority than preferred stock. C. Junk bonds offer no coupon payments to investors. D. Junk bonds are typically defined as bonds with default probabilities of 25% or higher. 4. Which of the following would allow a corporation to issue a bond at a lower coupon rate, all else equal? A. The addition of a call provision to the bond B. Issuing at a lower market price C. A deterioration in the corporation's credit quality D. An increase in the expected inflation rate 5. Which of the following will cause the value of a bond to increase, other things held the same? 1. Required rate of return on the bond increases. 11. The company's rating drops from AAA to BBB. III. Interest rates decrease. IV. The company issues new debt A. I and II B. I and III C. III only D. III and IV 1-2 of 7 Answers: Question Answer 1 A 2 D 3 B B 5 4 6 D 7 8 A 9 B 10 11 12 13 D D 14 A B 15 16 A D 17 18 19 B 20

Answer & Explanation Solved by verified expert

See Answer