1. Which of the following statements is false for convertible debt? *None of thebelowIn the U.S., convertibles tend to be issued by smallerfirms.Convertible debt is useful for a company of unknown risk because the effects of risk are opposite on the twovalue components (straight debt and option to convert) and tend to cancel each other out.Convertible debt holders have less incentive to increase the risk of the firm's assets than straight debtholders.Convertible debt sends a less negative signal to the market than an equityissue.

In the U.S., convertibles tend to be issued by smaller firms.: Yes, that statement is true. In the…

Answered: Which of the following statements is…

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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The company's bank won't lend it any more money than it already has, and investment bankers have said that debentures are out of the question. The treasurer has asked you to do some research and suggest a few ways in which bonds might be made attractive enough to allow the company to borrow. Explain how to secure the bonds with owned assets in great detial. In what ways does it make the bonds more attractive to allow the company to borrow?
While individual consumers have a credit score, large, publicly-held corporations are not typically rated for default risk True False
Which statement is incorrect? Zero-coupon bonds are normally sold at a big discount because buyers do not earn any coupon payment Euro bonds are bonds that are sold by US firms to raise US dollar Major investors of preferred stocks are senior people as preferred stocks pay dividend like bonds but give holders voting right like stocks. Junk bonds are often used for mergers and acquisition deals
“Inside the company fixed income managers bought bonds but they did not keep them for very long at all. Instead, they were constantly buying, exchanging and selling the bonds in their portfolios” Explain why the behavior described in the above quote may happen in terms of interest-rate risk immunization and downgrade risk. Do not discuss speculation or arbitrage as causes of this behavior as these will not gain any credit in this examination.
Which of the following statements is NOT true? A. Debt contracts tend to impose more restrictions on the actions of the borrower than the lender B. Larger corporations have easier access to the securities market C. The financial sector is one of the least regulated industries in the US economy D. Collateral is used to secure debt contracts
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
Which of the following statements is true or false if the pecking order theory is correct ?
What is NOT considered as an advantage of buying bonds in the Philippines? * Bonds are much less volatile compared to other forms of investments that can fluctuate depending on the market trends. Bonds perform better than the high-risk, high-reward stock investments. Interest on bonds are paid periodically, giving the buyer fixed passive income on top of his other sources of income or revenue. The income one receives from bonds is much higher compared to the savings accounts and time deposits. The low-risk features of bonds can offset potential losses that high-risk investments may incur.
Merck is an example of a company who decided to mitigate the adverse impact of market fluctuations by entering into hedging agreements using: B. Interest rate swaps C. Both A & B A. Currency options D. Neither A or B
Which of the following events would make it less likely that a company would choose to call its outstanding callable bonds? O The company's financial situation improves significantly. O Ratings on the company's bonds are upgraded. O Inflation decreases significantly. Market interest rates decline sharply. O Market interest rates rise sharply.

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