Crowdfunding is not a form of raising fund for company’s capital budgets since they are less known than equity or debt funding. True False It is easier for bonds to be traded over the counter in comparison to shares or stocks. True False Higher bond price is exhibited when there is a lower interest rate. True False

Crowdfunding is not a form of raising fund for company’s capital budgets since they are less known than equity or debt funding. True False It is easier for bonds to be traded over the counter in comparison to shares or stocks. True False Higher bond price is exhibited when there is a lower interest rate. True False

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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When the total cost of borrowing is less than the bond interest paid, Select answer from the options below the bonds were sold at a discount. the issuing company is likely in poor financial health. the lender is likely to give the issuing company a discount. the bonds were sold above face value.
Under the Pure Expectations Theory, if issuers expect interest rates to increase, O Two statements are correct. O borrowers will generally prefer to issue short-term securities rather than long-term securities. O the corresponding decrease in the demand for long-term funds by borrowers places downward pressure on long-term funds. O Three statements are correct. O there is downward pressure on the yield of short-term funds. O Only one statement is correct. O they will prefer to lock in the present interest rate over a long period of time.
When prevailing market rates decline over the time an investor owns a bond, there is often an opportunity to receive a capital gain on the sale of the bond. True False
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
A bond does not pay out regular interest. This means that *a. This is a bad investment.b. It is unsecured.c. It is a junk bond.d. It is a zero-coupon bond.
In the federal funds markets, financial institutions can borrow money from the Federal Reserve. True False Assuming the STRIPS are held to maturity, their investors know the precise payouts they'll receive. True False
An advantage of bonds is O Bonds do not affect owner control O Bonds require payment of par value at maturity O Bond payments can be burdensome when income and cash flow are low O Bonds can decrease return on equity
Explain why company managers might choose to issue zero-coupon bonds instead of interest-bearing bonds or coupon bonds instead of zero- coupon bonds? Give pros and cons of each. Be sure to consider the situation from the bond issuer's viewpoint and not the bondholder.
Describe clearly how theories from behavioural finance can justify the following abnormal phenomena of investment: (1) Investors exhibit tendency to overpay for assets with poor average return but a potential to deliver a huge payoff, such as penny stocks or corporate bonds of financially distressed companies. (2) Investors exhibit tendency to sell winning stocks too early but hold losing stocks for too long