Interest premium. Shaky Company has just issued a five-year bond with a yield of 9%; Stable Company has issued an identical five-year bond, but with a yield of 7%. Why did the market demand a higher return from Shaky (Select the best response.) O A. Companies with poor financials tend to compensate investors for the liquidity risk by issuing bonds with high yields. O B. Companies with poor financials tend to compensate investors for the systematic risk by issuing bonds with high yields. O C. Companies with poor financials tend to compensate investors for the default risk by issuing bonds with high yields. O D. Companies with poor financials tend to compensate investors for the inflation risk by issuing bonds with high yields.
Interest premium. Shaky Company has just issued a five-year bond with a yield of 9%; Stable Company has issued an identical five-year bond, but with a yield of 7%. Why did the market demand a higher return from Shaky (Select the best response.) O A. Companies with poor financials tend to compensate investors for the liquidity risk by issuing bonds with high yields. O B. Companies with poor financials tend to compensate investors for the systematic risk by issuing bonds with high yields. O C. Companies with poor financials tend to compensate investors for the default risk by issuing bonds with high yields. O D. Companies with poor financials tend to compensate investors for the inflation risk by issuing bonds with high yields.
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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Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
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Transcribed Image Text:Interest premium. Shaky Company has just issued a five-year bond with a yield of 9%; Stable Company has issued an identical five-year bond, but with a yield of 7%. Why did the market demand a higher return from Shaky?
(Select the best response.)
O A. Companies with poor financials tend to compensate investors for the liquidity risk by issuing bonds with high yields.
O B. Companies with poor financials tend to compensate investors for the systematic risk by issuing bonds with high yields.
O C. Companies with poor financials tend to compensate investors for the default risk by issuing bonds with high yields.
O D. Companies with poor financials tend to compensate investors for the inflation risk by issuing bonds with high yields.
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