Question
When a corporations bond rating is changed from AA to B, the corporation will subsequently have: a. More difficulty borrowing money and will pay a
When a corporations bond rating is changed from AA to B, the corporation will subsequently have:
a. More difficulty borrowing money and will pay a higher interest rate on new debt
b. Less difficulty borrowing money and will pay a higher interest rate on new debt
c. More difficulty borrowing money and will pay a lower interest rate on new debt
d. Less difficulty borrowing money and will pay a lower interest rate on new debt
e. Will have little impact on the corporation because Double-A and Single-B are essentially the same rating
2. When a bond sells at a discount, which of the following is true regarding the relationship between the coupon rate (CR), current yield (CY), and yield to maturity (YTM):
a. Coupon rate is less than Current yield
b. Current yield is greater than Yield to maturity
c. Coupon rate is greater than Yield to maturity
d. Both (a) and (b) are true but not (c)
d. All three (a), (b), and (c) are true
3. Given the following information:
Bond Coupon Rate Years Until Bond Matures
A 10% 10 years
B 10% 2 years
Assume the required return (yield to maturity) on both bonds is 4%. Which of the following statements is most correct?
a. Both bonds are selling at a discount and the discount on Bond A is greater than the discount on Bond B
b. Both bonds are selling at a discount and the discount on Bond B is greater than the discount on Bond A
c. Both bonds are selling at a premium and the premium on Bond A is greater than the premium on Bond B
d. Both bonds are selling at a premium and the premium on Bond B is greater than the premium on Bond A
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