Question
9. Property developer Lendlease issues 90-day bank bills that have a yield-to-maturity (YTM) of 3% p.a. that you as a potential buyer value at a
9. Property developer Lendlease issues 90-day bank bills that have a yield-to-maturity (YTM) of 3% p.a. that you as a potential buyer value at a price of $95,000.
The latest analyst report comes out showing a fall in Lendlease's credit rating for BB+ to BB due to lower projections of earnings for the remainder of the year.
Which of the following best describes how you would revalue the investment?
Select one:
a. Falling earnings causes a increase in interest rate risk, which increases the YTM, increasing the value of the bill where you would pay a price higher than $95,000.
b. Falling earnings causes a increase in liquidity risk, which increases the YTM, reducing the value of the bill where you would pay a price lower than $95,000.
c. Rising credit risk causes a fall in earnings, which decreases the YTM, reducing the value of the bill where you would pay a price higher than $95,000.
d. Rising liquidity risk causes a fall in earnings, which decreases the YTM, reducing the value of the bill where you would pay a price higher than $95,000.
e. Falling earnings causes a increase in credit risk, which increases the YTM, reducing the value of the bill where you would pay a price lower than $95,000.
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