Answer T or False for 4-10 .

4) In a buy limit order the designated price is greater than the current market price of 5) The prices of high coupon bonds tend to be less sensitive to a given change in interest ra 6) If two bonds have the same maturity and the same expected rate of return, but one has security rather than low coupon bonds, other things equal and held constant. higher coupon, the price of the low coupon bond will be more affected by a given chan 7) Going public establishes a true market value for the firm and ensures that a liquid marke 8) The cash ows associated with common stock are difficult to evaluate due to the 9) A putable bond may be redeemed at par value at the holder's option. Usually, the put in interest rates will always exist for the firms shares. uncertainty and variability associated with them. option can be exercised only if the issuer takes some specific action, such as significantly increasing debt 10) The common stock valuation model gives no consideration to expected capital gains. (b) () Explain what happens to the price of a fixed-rate bond if (1) interest rates rise above the bond's coupon rate or (2) interest rates fall below the bond's coupon rate (ii) Why do the prices of tixed-rate bonds fall if expectations for inflation rise? (iii)Why do most bond trades occur in the over-the-counter market? (iv) If a bond issue is to be sold at par, how will its coupon rate be determined? (20 marks)