Scenario A car manufacturing company loses 40% of its market share and has a declining investment in new product development. A start-up company is struggling with finances for its projects. A company's interest coverage ratio improves. A company's credit rating was upgraded from AA to AAA. Impact on Yield Increase Increase Decrease Decrease Cost of Borrowing Money from Bond Markets Less expensive More expensive More expensive More expensive
Scenario A car manufacturing company loses 40% of its market share and has a declining investment in new product development. A start-up company is struggling with finances for its projects. A company's interest coverage ratio improves. A company's credit rating was upgraded from AA to AAA. Impact on Yield Increase Increase Decrease Decrease Cost of Borrowing Money from Bond Markets Less expensive More expensive More expensive More expensive
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
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Transcribed Image Text:Credit ratings affect the yields on bonds. Based on the scenario described in the following table, determine whether yields will increase or decrease and whether it will be more expensive or less expensive, as compared to other players in the market, for a company to borrow money from the bond market.
| Scenario | Impact on Yield | Cost of Borrowing Money from Bond Markets |
|-----------------------------------------------------------------------------|-----------------|-------------------------------------------|
| A car manufacturing company loses 40% of its market share and has a declining investment in new product development. | Increase | Less expensive |
| A start-up company is struggling with finances for its projects. | Increase | More expensive |
| A company’s interest coverage ratio improves. | Decrease | More expensive |
| A company’s credit rating was upgraded from AA to AAA. | Decrease | More expensive |
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