Which of the following statements is not true regarding bond ratings? Select one: C a. The ratings assigned are meant to indicate the probability of default for the bond issuer. b. The bonds assigned one of the top four rating classes are considered investment grade bonds. C. Once a rating is assigned to an issue it cannot be changed for the first two years after which it is reviewed on a regular basis. d. Bonds rated BB and below are referred to as high yield or "junk" bonds.

Which of the following statements is not true regarding bond ratings? Select one: C a. The ratings assigned are meant to indicate the probability of default for the bond issuer. b. The bonds assigned one of the top four rating classes are considered investment grade bonds. C. Once a rating is assigned to an issue it cannot be changed for the first two years after which it is reviewed on a regular basis. d. Bonds rated BB and below are referred to as high yield or "junk" bonds.

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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B. TRUE OR FALSE. Use the separate answer sheet. 1. If the effective (market) interest rate is less than the coupon (stated) interest rate on the date that bonds are sold, the bond price will be less than the face value of the bonds. 2. The effective interest rate method of amortizing bond discount or premium can only be used when it doesn't materially differ from the straight-line method, as the straight-line method is considered GAAP. 3. 4. 5. 6. 7. 678 8. 9. 10. A stock dividend converts earned capital into contributed capital, but total stockholder equity doesn't change. A bond's carrying value at maturity should equal its par or face value. Most corporations set a par value for their common shares at a fairly large number, such as $100 per share, in order to minimize legal liability on the part of shareholders. Treasury shares are considered to be issued and outstanding. Paid-in capital in excess of par value will be created when a 50% stock dividend is declared. All corporate…
1.The first thing that the bank consider prior calling a bond issued a. lower interest in the market b. the higher interest rate on the market c. lower inflation rate 2. most typical form of short-term, zero-coupon debt issued by the Treasury. a. treasury bonds b. treasury bills c. structured notes
Which of the following statements is right? Group of answer choices a)Ignoring the liquidity risk, the 10-treasry bond should have the same interest rate as the 10-year corporate bond. b)Ignoring the default risk, the 10-treasry bond should have the same interest rate as the 10-year corporate bond. c)The return of the 10-year treasury bond must be less than that of the 10-year corporate bond d)The return of the 10-year treasury bond must be greater than that of the 10-year corporate bond
Under normal conditions, which of the following would be most likely to increase the coupon rate required for a bond to be issued at par? a. The rating agencies change the bond's rating from Baa to Aaa. b. Adding additional restrictive covenants that limit management's actions. c. Adding a sinking fund. d. Adding a call provision. e. Making the bond a first mortgage bond rather than a debenture.
For a standard corporate bond, when are the following characteristics of the bond determined? ······ The amount that the issuer returns to the bondholder, when the bond matures. The maturity date. The bond's market yield. The bond's market price. The price that the bondholder pays to the issuer to acquire the bond. The amounts of any interest payments. The bond's coupon rate. The dates of any interest payments. 1. 2. Fixed before the bonds are sold and does not change. Fixed when the bonds are sold and does not change. 3. Fluctuates continually.
The lowest rating a bond can receive from Moody's and still be classified as an investment-quality bond is: Group of answer choices BB. Caa. B. Ba. Baa.
Which of the following statement is wrong? Group of answer choices a)the coupon rate of a newly issued bond is generally set equal to the required rate on bonds of equal risk. b)Since short-term interest is more volatile than the long-term interest rate, the price risk of short-term bond is more than that of the long-term bond c)The required rate of return for AAA bond is lower than that of an AA bond d)Sinking funds are provisions included in bond indentures that require companies to retire bonds on a scheduled basis prior to their final maturity.
The coupon rate of a bond is typically __________.a. fixed at the time of bond issuanceb.subject to change based on the federal funds ratec.zero in the case of zero - coupon bondsd. Both A and C
an issuer issues three bonds. i) a fixed rate bond paying a fixed coupon, ii) a floater paying a floating coupon rate equal to LIBOR plus 200 basis pooints, and iii) an inverse floater paying a floating coupon equal to 800 basis points minus LIBOR. Which bond is least risky? a. the floater b. equally risky c. the inverse floater d. the fixed rate bond
Which of the following is FALSE regarding bonds? Long term bonds have greater interest rate risk than do short term bonds. A bond indenture describes the terms of the bond issue. Bonds represent ownership in the company. if interest rates in the market go up, the present value of existing bonds goes down. A bond issuer is legally required to make the interest payments and repay the par value at maturity. Previous Page Next Page Page 12 of 30
1. Types of bonds Fixed-income securities consist of debt instruments and preferred stock. Bonds are debt securities in which a borrower promises to pay a specified interest rate and principal at a future date. Which of the following statements about Treasury bonds is the most accurate? O Treasury bonds have a very small amount of default risk, so they are not completely riskless. O Treasury bonds are completely riskless. O Treasury bonds are not completely riskless, since their prices will decline when interest rates rise. Based on the information given in the following statement, answer the questions that follow: In July 2009, Walmart sold 100 billion yen of five-year samurai bonds. Lead managers in the deal were Mizuho Securities, BNP Paribas, and Mitsubishi UFJ Securities. Who is the issuer of the bonds? O Mitsubishi UFJ Securities O BNP Paribas O Walmart What type of bonds are these? O Corporate bonds O Municipal bonds O Government bonds O O
The contract interest rate for bonds:A. must equal the effective interest rate.B. is greater than the effective interest rate when bonds are issued at a discount.C. has no relation to the cash flow associated with a particular bond.D. will fluctuate over the life of a bond.E. None of these.

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