Bond or debt securities pay a stated rate of interest. This rate of interest is dependent on the risk associated with the investment. Also, bond prices change when the risks associated with those bonds change. Find the ratings for any chosen company that issues debt securities and then answer the following questions. a. Explain the rating and the meaning of the rating. b. Justify the rating. What types of things can cause a change in the company's credit rating? c. Explain the relationship between the company's credit rating and the merit of an investment in that company's bonds

Bond or debt securities pay a stated rate of interest. This rate of interest is dependent on the risk associated with the investment. Also, bond prices change when the risks associated with those bonds change. Find the ratings for any chosen company that issues debt securities and then answer the following questions. a. Explain the rating and the meaning of the rating. b. Justify the rating. What types of things can cause a change in the company's credit rating? c. Explain the relationship between the company's credit rating and the merit of an investment in that company's bonds

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Which of the following are all traditional credit risk enhancement techniques? Group of answer choices B. Collateral, transparency, early termination, bond insurance C. Marking to market, netting, guarantees, reassignment D. Bond insurance, netting, disintermediation, put options A. Put options, netting, bond insurance, derivatives
When borrowers tend to pay back the loans to bankers earlier, the bank is facing a. Repricing risk O b. Yield curve risk O c. Basis points risk d. Embedded options risk
To earn a high rating from the bond rating agencies, a company would want to have: (check all that apply) A high profitability ratio A high quick ratio A low EBIT to interest coverage ratio A high debt-to-equity ratip
What is the primary motivation of investors in performing security analysis? A-identify the best times to buy and sell securities B-Contribute to the efficiency of securities markets C-Identify securities whose insrinsic values are at or near their market values D-Identify mispriced stocks
Solve this practice problem. Both pictures are the same problem
Bonds that have investment-grade ratings from sources such as S&P tend to have higher interest (coupon) rates due to higher default risk. True False
An example of asymmetric information in financial markets is that A. the borrower knows more than the lender. B. the lender knows more than the borrower. C. the borrower has a long-term goal while the lender has a short- term goal. D. the borrower and lender have different expectations about financial markets.
Which of the following is FALSE regarding bonds? Long term bonds have greater interest rate risk than do short term bonds. A bond indenture describes the terms of the bond issue. Bonds represent ownership in the company. if interest rates in the market go up, the present value of existing bonds goes down. A bond issuer is legally required to make the interest payments and repay the par value at maturity. Previous Page Next Page Page 12 of 30
1. Types of bonds Fixed-income securities consist of debt instruments and preferred stock. Bonds are debt securities in which a borrower promises to pay a specified interest rate and principal at a future date. Which of the following statements about Treasury bonds is the most accurate? O Treasury bonds have a very small amount of default risk, so they are not completely riskless. O Treasury bonds are completely riskless. O Treasury bonds are not completely riskless, since their prices will decline when interest rates rise. Based on the information given in the following statement, answer the questions that follow: In July 2009, Walmart sold 100 billion yen of five-year samurai bonds. Lead managers in the deal were Mizuho Securities, BNP Paribas, and Mitsubishi UFJ Securities. Who is the issuer of the bonds? O Mitsubishi UFJ Securities O BNP Paribas O Walmart What type of bonds are these? O Corporate bonds O Municipal bonds O Government bonds O O
The time value of money is used in calculating bond prices because: Group of answer choices A - The company might choose to repay the bonds prior to their maturity date B - Bond investors receive future payments and purchase bonds with current dollars C - The amount to be repaid at maturity will change as market rates change D - Cash interest payments to bondholders will change as market rates change
Can I use the yield to maturity (YTM) on a bond issued by the company as the cost of debt? A Yes, you can use the YTM B No, you cannot use the YTM C Only if the bond is liquid and has not special feature embedded in it D There is not enough information to answer this problem
Bonds with a B rating are highly speculative credit quality, meaning that there is a high level of uncertainty as to the capacity to meet financial obligations. True or False

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