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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Bubbles occur when asset prices are high above their fundamental values do not move even as new and unexpected information arises about a security rise even though net income is negative (net LOSS) move in opposing directions in debt versus equity markets
Debt overhang occurs when: 1. A company is so indebted that it has little incentive to invest as all the cash flows generated by investments are expected to be appropriated by creditors 2. A company has plenty of free cash flows but few investment opportunities 3. A company issues debt to pay dividends to its shareholders 4. A company carries excessive debt, so that it has the incentive to invest in high risk projects at the expense of creditors
(b) Assume that Modigliani-Miller Propositions 1 and 2 hold. Ex- plain carefully why the conclusion of each of the following argu- ments is incorrect: (i) As a firm borrows more and debt becomes risky, both share- holder and bondholders demand higher rates of return. Thus, by reducing its debt ratio, a firm can reduce both the cost of debt and the cost of equity. (ii) As leverage increases, the ratio of the market value of a firm's equity to income (after debt interest) increases.
Nhich of the below statements is TRUE? O a. Frequently, the ability of an issuer to make interest and principal payments is seriously and unexpectedly changed by a naturai or industrial accident or some regulatory change. O b. The lowest-grade bonds are designated by Moody's by the symbol Aaa and by the other three rating systems by the symbol AA O . Fixed-rate securities are attractive to some institutionial investors because they allow them to buy an asset with an income stream that closely matches the floating nature of the income of some of their liabilities. O d. Each rating agency periodicalily publishes a table showirig the upgrade and downgrade history of the issues that it rated.
7- which of the statements given below is true? Please select one; a) every financial market allows loans to be made b) The New York Stock Exchange is an example of a primary market c) the capital market is a financial market in which only short term debt instruments (generally those with an original maturity of less than one year) are traded d) a pansion fund is not a contractual savings instution e) in the US financial intermediaries are restricted in what they are allowed to do and what assets m m they can hold
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
Q.A low debt ratio, compared to other industry competitors with similar operating leverage, most likely means the firm has A. a higher cost of capital than the competition. B. a higher EVA than the competition. C. a lower bond rating than the competition. D. none of the above.
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.

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