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1. If a firm raises capital by selling new bonds, it is called the issuing firm, and the coupon rate is generally set equal to

1. If a firm raises capital by selling new bonds, it is called the "issuing firm," and the coupon rate is generally set equal to the required rate on bonds of equal risk.

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2. There is an inverse relationship between bonds' quality ratings and their required rates of return. Thus, the required return is lowest for AAA-rated bonds, and required returns increase as the ratings get lower. NOTE AAA bonds are the highest rated bonds as they have the lowest amount of default risk (virtually zero).

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