1.One advantage of debt financing as compared to equity financing is that debt financing with callable bonds does not place any explicit financial obligations on the firm.

A.True

B.False

2.Suppose that XYZ Corporation has previously issued corporate bonds, preferred stock and common stock. Now, the firm has just received a change in its bond rating to A.AA from AAA. This means that a new bond issue by the firm will:

B.pay a higher coupon rate than firms with a AAA rating for the same type of bond issue

C.pay a lower coupon rate than firms with a AAA rating for the same type of bond issue.

D.the coupon rate will be the same as other firms with ratings considered "investment grade."

E.the firm will not be able to issue any new bonds until its rating returns to AAA.

F.none of the above as bond ratings are no longer relevant.

3. The dynamics of the bond market tend to make bond prices and current interest rates move in _______________ direction.

A.the same

B.the opposite

C.an unpredictable

D.all of the answer choices are correct