To select: Purchasing of bond either ‘Aaa’ or ‘Aa’ for one year investment horizon according to the excepted return value. Introduction : Selection of the bond is decided by the incremental return value. Higher the value of return will be chosen by the investor. Return value means returns or payment after the maturity period of the bond.

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Answer 1

Question

Chapter 16, Problem 6CP

A

Summary Introduction

To select: Purchasing of bond either ‘Aaa’ or ‘Aa’ for one year investment horizon according to the excepted return value.

Introduction : Selection of the bond is decided by the incremental return value. Higher the value of return will be chosen by the investor. Return value means returns or payment after the maturity period of the bond.

B

Summary Introduction

To explain: The variables which can cause realized incremental returns to differ from the indicated initial spread relationships.

Introduction: The value of incremental return is affected by the variables like quality credit, maturity period of the bond, and spread of bond. Quality credit defines as the type of the credit and maturity period is time period of the bond.

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Select all that are true with respect to the cost of debt. Group of answer choices it is the return the firm needs to earn overall to satisfy all investors It is the rate the debt holders demand given the risk they face as debt holders Can be estimated using CAPM Cannot be estimated using CAPM because CAPM is used for estimating the cost of equity Is always equal to the YTM on a company's existing bonds Is lower than the YTM on a company's existing debt if there is default risk Can be proxied by the YTM on a company's existing debt if the debt is risk free Flag question: Question 7

a.Distinguish between systematic and unsystematic risk and explain the significance of the distinction portfolio analysis b. Describe the assumption in CAPM analysis that corporate debt as a zero beta value c. Based on both the CAPM and Modigliani- Miller proposition (11), explain the support of relevant equations, how changes in the debt equity ratio can change a firm's equity beta

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Answer 2

Question

Chapter 16, Problem 6CP

A

Summary Introduction

To select: Purchasing of bond either ‘Aaa’ or ‘Aa’ for one year investment horizon according to the excepted return value.

Introduction : Selection of the bond is decided by the incremental return value. Higher the value of return will be chosen by the investor. Return value means returns or payment after the maturity period of the bond.

B

Summary Introduction

To explain: The variables which can cause realized incremental returns to differ from the indicated initial spread relationships.

Introduction: The value of incremental return is affected by the variables like quality credit, maturity period of the bond, and spread of bond. Quality credit defines as the type of the credit and maturity period is time period of the bond.

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Answer 3

Question

Chapter 16, Problem 6CP

A

Summary Introduction

To select: Purchasing of bond either ‘Aaa’ or ‘Aa’ for one year investment horizon according to the excepted return value.

Introduction : Selection of the bond is decided by the incremental return value. Higher the value of return will be chosen by the investor. Return value means returns or payment after the maturity period of the bond.

B

Summary Introduction

To explain: The variables which can cause realized incremental returns to differ from the indicated initial spread relationships.

Introduction: The value of incremental return is affected by the variables like quality credit, maturity period of the bond, and spread of bond. Quality credit defines as the type of the credit and maturity period is time period of the bond.

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Answer 4

Question

Chapter 16, Problem 6CP

A

Summary Introduction

To select: Purchasing of bond either ‘Aaa’ or ‘Aa’ for one year investment horizon according to the excepted return value.

Introduction : Selection of the bond is decided by the incremental return value. Higher the value of return will be chosen by the investor. Return value means returns or payment after the maturity period of the bond.

B

Summary Introduction

To explain: The variables which can cause realized incremental returns to differ from the indicated initial spread relationships.

Introduction: The value of incremental return is affected by the variables like quality credit, maturity period of the bond, and spread of bond. Quality credit defines as the type of the credit and maturity period is time period of the bond.

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Answer 5

Chapter 16, Problem 6CP

A

Summary Introduction

To select: Purchasing of bond either ‘Aaa’ or ‘Aa’ for one year investment horizon according to the excepted return value.

Introduction : Selection of the bond is decided by the incremental return value. Higher the value of return will be chosen by the investor. Return value means returns or payment after the maturity period of the bond.

B

Summary Introduction

To explain: The variables which can cause realized incremental returns to differ from the indicated initial spread relationships.

Introduction: The value of incremental return is affected by the variables like quality credit, maturity period of the bond, and spread of bond. Quality credit defines as the type of the credit and maturity period is time period of the bond.

Answer 6

Chapter 16, Problem 6CP

A

Summary Introduction

To select: Purchasing of bond either ‘Aaa’ or ‘Aa’ for one year investment horizon according to the excepted return value.

Introduction : Selection of the bond is decided by the incremental return value. Higher the value of return will be chosen by the investor. Return value means returns or payment after the maturity period of the bond.

Answer 7

Chapter 16, Problem 6CP

A

Summary Introduction

To select: Purchasing of bond either ‘Aaa’ or ‘Aa’ for one year investment horizon according to the excepted return value.

Introduction : Selection of the bond is decided by the incremental return value. Higher the value of return will be chosen by the investor. Return value means returns or payment after the maturity period of the bond.

Answer 8

B

Summary Introduction

To explain: The variables which can cause realized incremental returns to differ from the indicated initial spread relationships.

Introduction: The value of incremental return is affected by the variables like quality credit, maturity period of the bond, and spread of bond. Quality credit defines as the type of the credit and maturity period is time period of the bond.

Answer 9

B

Summary Introduction

To explain: The variables which can cause realized incremental returns to differ from the indicated initial spread relationships.

Introduction: The value of incremental return is affected by the variables like quality credit, maturity period of the bond, and spread of bond. Quality credit defines as the type of the credit and maturity period is time period of the bond.

Answer 10

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Answer 11

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Answer 12

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Answer 13

Ch. 16 - Prob. 1PS Ch. 16 - Prob. 2PS Ch. 16 - Prob. 3PS Ch. 16 - Prob. 4PS Ch. 16 - Prob. 5PS Ch. 16 - Prob. 6PS Ch. 16 - Prob. 7PS Ch. 16 - Prob. 8PS Ch. 16 - Prob. 9PS Ch. 16 - Prob. 10PS

Solution Summary: The author explains that the value of incremental return is affected by variables like quality credit, maturity period, and change in spread.

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