various types bonds by their terms of contract, pledge collateral, and so on. Identify the type description given in the table that follows: Description These bonds are backed by real estate holdings and equipment, and if a company goes bankrupt, the collateral can be sold off to compensate for the default. These bonds, more so than other collateralized securities, have prior claims over assets. These bonds are traded in the bond markets based on investors' belief that the issuer will not default on the repayment. These bonds have no collateral and usually offer higher yields. These bonds are considered the riskiest of all corporate bonds and thus offer the highest interest rates. Based on your understanding of bond ratings and bond-rating criteria, which of the following statements is true? O BBB bonds usually have the lowest yields in the bond markets. O US government bonds usually have the lowest yields in the bond markets. Type of Bond In 2008, the United States began to witness one of the worst recessions since the 1930s. The collapse of the housing bubble in 2006 led to a massive decline in real estate prices, affecting consumers and institutions, especially banking and financial entities. Severe liquidity shortfalls in the United States as well as other global markets led to a serious credit crisis. During the credit crisis of 2008-2009, several banks and other businesses went through a reorganization process or were forced to liquidate. Consider the following example: In January 2009, American electronics retailer Circuit City Inc. closed all of its stores and sold all of its merchandise. Source: "Circuit City to Shut Down." CNN Money. Cable News Network, n.d. Web. August 31, 2010. http://money.cnn.com/2009/01/16/news/companies/circuit_city This is an example of: O Liquidation
various types bonds by their terms of contract, pledge collateral, and so on. Identify the type description given in the table that follows: Description These bonds are backed by real estate holdings and equipment, and if a company goes bankrupt, the collateral can be sold off to compensate for the default. These bonds, more so than other collateralized securities, have prior claims over assets. These bonds are traded in the bond markets based on investors' belief that the issuer will not default on the repayment. These bonds have no collateral and usually offer higher yields. These bonds are considered the riskiest of all corporate bonds and thus offer the highest interest rates. Based on your understanding of bond ratings and bond-rating criteria, which of the following statements is true? O BBB bonds usually have the lowest yields in the bond markets. O US government bonds usually have the lowest yields in the bond markets. Type of Bond In 2008, the United States began to witness one of the worst recessions since the 1930s. The collapse of the housing bubble in 2006 led to a massive decline in real estate prices, affecting consumers and institutions, especially banking and financial entities. Severe liquidity shortfalls in the United States as well as other global markets led to a serious credit crisis. During the credit crisis of 2008-2009, several banks and other businesses went through a reorganization process or were forced to liquidate. Consider the following example: In January 2009, American electronics retailer Circuit City Inc. closed all of its stores and sold all of its merchandise. Source: "Circuit City to Shut Down." CNN Money. Cable News Network, n.d. Web. August 31, 2010. http://money.cnn.com/2009/01/16/news/companies/circuit_city This is an example of: O Liquidation
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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Please solve this practice problem.
![### Understanding Types of Bonds and Economic Impacts
#### Types of Bonds
You can distinguish the various types of bonds by their terms of contract, pledge of collateral, and so on. Identify the type of bond based on each description given in the table below:
| Description | Type of Bond |
|-------------|--------------|
| These bonds are backed by real estate holdings and equipment, and if a company goes bankrupt, the collateral can be sold off to compensate for the default. These bonds, more so than other collateralized securities, have prior claims over assets. | [Select from dropdown] |
| These bonds are traded in the bond markets based on investors’ belief that the issuer will not default on the repayment. These bonds have no collateral and usually offer higher yields. | [Select from dropdown] |
| These bonds are considered the riskiest of all corporate bonds and thus offer the highest interest rates. | [Select from dropdown] |
#### Bond Ratings and Yield
Based on your understanding of bond ratings and bond-rating criteria, which of the following statements is **true**?
- ( ) BBB bonds usually have the lowest yields in the bond markets.
- ( ) US government bonds usually have the lowest yields in the bond markets.
#### Economic Context and Impact
In 2008, the United States began to witness one of the worst recessions since the 1930s. The collapse of the housing bubble in 2006 led to a massive decline in real estate prices, affecting consumers and institutions, especially banking and financial entities. Severe liquidity shortfalls in the United States as well as other global markets led to a serious credit crisis. During the credit crisis of 2008–2009, several banks and other businesses went through a reorganization process or were forced to liquidate. Consider the following example:
---
**In January 2009, American electronics retailer Circuit City Inc. closed all of its stores and sold all of its merchandise.**
*Source:* "Circuit City to Shut Down." *CNN Money*. Cable News Network, n.d. Web. August 31, 2010. [Source link](http://money.cnn.com/2009/01/16/news/companies/circuit_city)
---
**This is an example of:**
- (x) Liquidation
This resource provides an understanding of different bond types, bond markets, and their correlation with economic events and impacts, such as the 2008–2009 financial crisis.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Faf434c73-38f1-4a89-b981-edd99d760c82%2Fef87bc0d-ae61-4974-a036-2100c7ce8e38%2Fyvytmqd_processed.png&w=3840&q=75)
Transcribed Image Text:### Understanding Types of Bonds and Economic Impacts
#### Types of Bonds
You can distinguish the various types of bonds by their terms of contract, pledge of collateral, and so on. Identify the type of bond based on each description given in the table below:
| Description | Type of Bond |
|-------------|--------------|
| These bonds are backed by real estate holdings and equipment, and if a company goes bankrupt, the collateral can be sold off to compensate for the default. These bonds, more so than other collateralized securities, have prior claims over assets. | [Select from dropdown] |
| These bonds are traded in the bond markets based on investors’ belief that the issuer will not default on the repayment. These bonds have no collateral and usually offer higher yields. | [Select from dropdown] |
| These bonds are considered the riskiest of all corporate bonds and thus offer the highest interest rates. | [Select from dropdown] |
#### Bond Ratings and Yield
Based on your understanding of bond ratings and bond-rating criteria, which of the following statements is **true**?
- ( ) BBB bonds usually have the lowest yields in the bond markets.
- ( ) US government bonds usually have the lowest yields in the bond markets.
#### Economic Context and Impact
In 2008, the United States began to witness one of the worst recessions since the 1930s. The collapse of the housing bubble in 2006 led to a massive decline in real estate prices, affecting consumers and institutions, especially banking and financial entities. Severe liquidity shortfalls in the United States as well as other global markets led to a serious credit crisis. During the credit crisis of 2008–2009, several banks and other businesses went through a reorganization process or were forced to liquidate. Consider the following example:
---
**In January 2009, American electronics retailer Circuit City Inc. closed all of its stores and sold all of its merchandise.**
*Source:* "Circuit City to Shut Down." *CNN Money*. Cable News Network, n.d. Web. August 31, 2010. [Source link](http://money.cnn.com/2009/01/16/news/companies/circuit_city)
---
**This is an example of:**
- (x) Liquidation
This resource provides an understanding of different bond types, bond markets, and their correlation with economic events and impacts, such as the 2008–2009 financial crisis.
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