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 itand 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.

A liquid asset is one that can be converted to cash quickly and easily. Liquid assets include cash,…

Answered: he following statements is TRUE? emand…

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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5. Бопа уyielas Coupon payments are fixed, but the percentage return that investors receive varies based on market conditions. This percentage return is referred to as the bond's yield. Yield to maturity (YTM) is the rate of return expected from a bond held until its maturity date. However, the YTM equals the expected rate of return under certain assumptions. Which of the following is one of those assumptions? The bond will not be called. The bond has an early redemption feature. Consider the case of Blanche Inc.: Blanche Inc. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price is $1,130.35. However, Blanche Inc. may call the bonds in eight years at a call price of $1,060. What are the YTM and the yield to call (YTC) on Blanche Inc.'s bonds? YTM YTC Value If interest rates are expected to remain constant, what is the best estimate of the remaining life left for Blanche Inc.'s bonds? 13…
3. When the bond stated interest rate (coupon rate) exceeds the market rate, the bonds are issued at discount (meaning the issuance price is less than the face value). Is this statement TRUE or FALSE? Your answer is Explain your answer: 4. Corporate credit ratings CCC suggest the lowest default risk. Is this statement TRUE or FALSE? Your answer is Explain your answer:
Why is the yield of bonds with credit risk higher than that of otherwise identical default-free bonds?
An option free bond’s value/price has an inverse relationship with interest rates/yield. If yields increase, the value of a bond decreases
d. How does the credit spread change with the bond rating? Why? (Select the best choice below.) A. The credit spread increases as the bond rating falls because lower-rated bonds are riskier. B. The credit spread decreases as the bond rating rises because higher-rated bonds are riskier. C. The credit spread increases as the bond rating rises because higher-rated bonds are riskier. D. The credit spread decreases as the bond rating falls because lower-rated bonds are riskier.
Which of the following is an advantage of floating rate bonds to investors? Group of answer choices A. Their market value tend to be highly stable regardless of interest rate changes. B. All of these options are correct. C. They are sold at a deep discount. D. They allow for locking in a multiplier of the initial investment.
B. TRUE OR FALSE. Use the separate answer sheet. 1. If the effective (market) interest rate is less than the coupon (stated) interest rate on the date that bonds are sold, the bond price will be less than the face value of the bonds. 2. The effective interest rate method of amortizing bond discount or premium can only be used when it doesn't materially differ from the straight-line method, as the straight-line method is considered GAAP. 3. 4. 5. 6. 7. 678 8. 9. 10. A stock dividend converts earned capital into contributed capital, but total stockholder equity doesn't change. A bond's carrying value at maturity should equal its par or face value. Most corporations set a par value for their common shares at a fairly large number, such as $100 per share, in order to minimize legal liability on the part of shareholders. Treasury shares are considered to be issued and outstanding. Paid-in capital in excess of par value will be created when a 50% stock dividend is declared. All corporate…
A "discount" bond's price is less than it's par value because the coupon rate is less than the yield to maturity. A) True B) False
What is the impact of bond price fluctuations on the yield or APR of a bond? When bond prices go down, the yield or APR goes up. When bond prices 90 up, the yield or APR also goes up Bond price fluctuations have noimpact on the yield or APR
Over the term of the bonds, the amount of unamortized discount will a. be unaffected until the bonds mature. b. decrease. c. fluctuate up and down if the market is volatile. d. increase.
1. Bonds with longer maturities will a. fluctuate less when interest rate change b. fluctuate more when interest rate change c. none of the above
Explain the concept of bond price elasticity. Would bond price elasticity suggest a higher price sensitivity for zero-coupon bonds or high-coupon bonds that are offering the same yield to maturity? Why? What does this suggest about the market value volatility of mutual funds containing zero-coupon Treasury bonds versus high-coupon Treasury bonds?

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he following statements is TRUE? emand for a bond declines when it becomes less liquid, decreasing the in elatively more liquid bonds. prporate bond market is the most liquid bond market. ifferences in bond interest rates reflect differences in default risk only.