Question
Based on the descriptions given in the following table, identify the type of bond that best matches each description: Description Type of Bond Bonds that
Based on the descriptions given in the following table, identify the type of bond that best matches each description:
Description | Type of Bond |
---|---|
Bonds that are offered at a price lower than their par value at the time of issue | |
Bonds that must increase the bond's coupon rate if the company's rating is downgraded | Suppose you invested in company A's bonds and the company used a large amount of that debt to acquire another firm. (Such a deal is called a leveraged buyout.) This deal led to significant losses for bondholders and had a negative impact on the firm's credit risk. In such a situation, the company's bond rating is likely to , the yield to maturity will , and the value of its outstanding bonds will . Due to the impact that sudden events could have in the value of bonds, event risk covenants, or provisions, are included in the issuance of some corporate bonds. This covenant allows the bondholder to turn in, or put, a bond back to the issuer of the bond at par if a takeover, merger, or a major change in the company's capital structure were to occur. Such a bond is called a .
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