Question
1. If the company encounters financial difficulty causing its bond rating to decline from AAA to AA, the next coupon payment on a typical bond
1.If the company encounters financial difficulty causing its bond rating to decline from AAA to AA, the next coupon payment on a "typical" bond would be expected to
A.decline
B.increase
C.not change
D.not enough information to determine
2. Investors buy bonds for the following reason(s):
A.receive income from the coupon payments
B.to take advantage of any opportunities for price appreciation
C.to take advantage of any changes in interest rates
D.all of the answer choices are correct
3.Suppose you purchased bonds issued by ABC Corporation at 110% of par (remember: par is $1000 unless told otherwise). The firm promises to pay an 8% annual coupon on a semi-annual basis and to pay the par value at maturity, which is 10 years from today. Each coupon payment of ____ is commonly called the annuity portion of this bond and the maturity value of ______ is commonly called the lump sum component.
A.$80; $1000
B.$80; $1100
C.$40; $1000
D.$40; $1100
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