Answered: Corporate bonds are riskier than US…

Corporate bonds are riskier than US Treasury, so they pay default risk premium over what Treasury pays to stay competitive in the market. True False

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 2Q: Short-term interest rates are more volatile than long-term interest rates, so short-term bond prices...

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Similar questions

1. When the Fed purchases treasuries to supply market liquidity, does that increase, decrease, or have no effect on the credit spread for a corporate bond?
A corporate bond's return becomes less uncertain as default risk increases. True or False. Explain your answer
Does governance of firms affect the prices of their bonds?Point: No. Bond prices are primarily determined by interest rate movements and therefore are not affected by the governance of firms that issue the bonds.Counter-Point: Yes. Bond prices reflect the risk of default. Firms with more effective governance may be able to reduce their default risk and thereby increase the prices of their bonds.Who is correct?
Which of the following is most correct? Treasury bonds carry high default risk because government has the option not to pay its indebtedness. Corporate bonds have lower interest rates compared with treasury bonds because bonds were issued with the aid of financial intermediaries. Corporate bonds have no default risk because they are backed by their corporate assets. Treasury bonds have lower interest rates because they are assumed to carry no default risk.
Which of the following statements is TRUE? O The demand for a bond declines when it becomes less liquid, decreasing the interest rate spread between it and relatively more liquid bonds. O The corporate bond market is the most liquid bond market. O The differences in bond interest rates reflect differences in default risk only. O A liquid asset is one that can be quickly and cheaply converted into cash.
1. When market volatility increases, does that increase, decrease, or have no effect on the credit spread of a corporate bond?
Which of the following statements is CORRECT? a. Convertible bonds generally have lower coupon rates than non-convertible bonds of similar default risk because they offer the possibility of capital gains. b. A debenture is a secured bond that is backed by some or all of the firm's fixed assets. c. Junk bonds typically provide a lower yield to maturity than investment-grade bonds. d. A company's subordinated debt has less default risk than its senior debt. e. Senior debt is debt that has been more recently issued, and in bankruptcy it is paid off after junior debt because the junior debt was issued first.
A bond trader observes the following information:• The Treasury yield curve is downward sloping.• Empirical data indicate that a positive maturity risk premium applies to both Treasury and corporate bonds.• Empirical data also indicate that there is no liquidity premium for Treasury securities but that a positive liquidity premium is built into corporate bond yields.On the basis of this information, which of the following statements is most CORRECT? a. The corporate yield curve must be flat. b. Since the Treasury yield curve is downward sloping, the corporate yield curve must also be downward sloping. c. A 10-year Treasury bond must have a higher yield than a 10-year corporate bond. d. A 10-year corporate bond must have a higher yield than a 5-year Treasury bond. e. A 5-year corporate bond must have a higher yield than a 10-year Treasury bond.
Why are the bonds treated as a conservative investment? Do you think the treasury bills are risk-free assets?
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. A. Which of the following statements about Treasury bonds is the most accurate? Treasury bonds have a very small amount of default risk, so they are not completely riskless. Treasury bonds are completely riskless. Treasury bonds are not completely riskless, since their prices will decline when interest rates rise. B. Based on the information given in the following statement, answer the questions that follow: In July 2009, Hungary successfully issued 1 billion euros in bonds. The transaction was managed by Citigroup. Who is the issuer of the bonds? The Hungarian government Hungary Bank Citigroup C. What type of bonds are these? Municipal bonds Corporate bonds Government bonds
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 values of Treasury bonds can change widely with changes in interest rates. True False