IDs A Which of A noru cospon bonds carreat yield is eqnal to its yield to maturity oise equal, if a bond's yield to matunty A bond's yelid to muturity exceods its sell at a peemlum ever aarity eacceds its coupon rate, the bosd will sell at par cospon ratc, the boud will All el egral, if a bond s yield to maturity increases, its carreot y yield will fall orporation is planing to isse new 20-year boeds. The corrent plan is to make the honds alable, but this y be changed If the bonds are made callable after 5 years at a 5 call preaniom how affect their teqired nite of return? Hecause of the cell prcmiom, the required rate of reurn would decline. b hore is no tasos to especi a change in the required rate of return The roquired rale of return would decline becauase the bond would then be less risky to a 9The sequired rate of rotura would increase because the bond would thea be moce risky to e. It is impossible to say without more information a. If a company with a high beta merges with a low-beta company, the best estimate of the 6. Which of the following statements is CORRECT? new menged company's beta is 1 0 it is easier to estimate the bctas associated with capital bodgeting projects than the betas associated with stocks, especially if the projects are closely associated with c research and developmeat activities The beta of an "average stock. which is also the market bsta," can change over time, sometimes drastically Ifa newly issued stock does not have a past history that can be used for calculating beta. then we should always estimate that its bela will turn out to be 1.0. This is especially true if the company finances with more debe than the average firm d e. During a period when a company is undergoing a change such as increasing its use of leverage or taking on riskier projects, the calculated historical beta may be drastically different from the beta that will exist in the future 7. Which of the following statements is CORRECT, other things held constant? a. If companies have fewer good investment opportunities, interest rates are likely to increase. If individuals increase their savings rate, interest rates are likely to increase. If expected inflation increases, interest rates are likely to increase. Interest rates on all debt securities tend to rise during recessions because recessions increase the possibility of bankruptcy, hence the riskiness of all debt securities Interest rates on long-term bonds are more volatile than rates on short-term debt securities like T-bills e
