Homework Answers
Answer: Option a is correct. Any bond with rating of BB or below
that is regarded as junk bond.
(b) Even bonds with AAA rating may default
(c) Minimum coupon rate for a bond is above Federal funds
rate
(d) The coupon rate on bonds can be higher than prime rate
Add Answer to:
12. Which of the statements regarding bonds is true? (a) A bond with a BB rating...
Which of the following statements is true? The prime rate is often the same as the...
Which of the following statements is true? The prime rate is often the same as the discount rate. The prime rate is higher than the federal funds rate. The federal funds rate is higher than the prime rate. The federal funds rate and the prime rate are often the same.
A U.S. corporate issued bond is currently trading for $932. Which of the following statements are...
A U.S. corporate issued bond is currently trading for $932. Which of the following statements are either likely or certainly true? (choose all that apply): 1) The bond's coupon rate is higher than its YTM. 2) The bond's coupon rate is lower than its YTM. 3) The bond's face value is $1000. 4) The bond pays interest semiannually. 5) This bond would be considered a discount bond at this time. 6) This bond would be considered a junk bond at...
HMK Enterprises would like to raise $10 million to invest in capital expenditures. The company plans...
HMK Enterprises would like to raise $10 million to invest in
capital expenditures. The company plans to issue 5-year bonds with
a face value of $1,000 and a coupon rate of 6.52% (annual
payments). The following table summarizes the yield to maturity for
5-year (annual-payment) coupon corporate bonds of various
ratings:
a. Assuming the bonds will be rated AA, what will be the price
of the bonds? (5 marks)
a. $856.32
b. $987.45
c. $999.66
d. $1,008.77
e. $1,019.88
b....
QUESTION 3 Consider the following information regarding corporate bonds: Rating Average Default Rate Recession Default Rate...
QUESTION 3 Consider the following information regarding corporate bonds: Rating Average Default Rate Recession Default Rate Average Beta |вв AAA 0.096 0.09% 0.05 B |ссс A BB AA 0.09% 0.296 0.49% 2.196 8.0% 5.2% 9.996 43.0% 1.0% 3.0% 16.0% 3.0% |1.0 0.05 0.26 0.31 0.17 0.05 Rearden Metal has a bond issue outstanding with ten years to maturity, a yield to maturity of 8.6% , and a B rating. The bondholders expected loss rate in the event of default is...
QUESTION 4 Consider the following information regarding corporate bonds: Rating AAA AA A T IAA BBB...
QUESTION 4 Consider the following information regarding corporate bonds: Rating AAA AA A T IAA BBB BB CCC Average Default Rate 0.0% 0.0% 0.296 0,496 2.196 5.296 9.996 Recession Default Rate 0.096 1.09 3.0% 3.096 8.0% 16.096 43.096 Average Beta 0.05 0.05 0.05 0.10 0.17 0.26 10.31 Equity Debt Rating BBB Company Market Capitalisation Total Enterprise Value ($mm) ($mm) Taggart $4,500 8,000 Transcontinental Rearden Metal $3,800 7.200 Wyatt Oil $2,400 3,800 Nielson Motors $1,500 4,400 Your estimate of the asset...
Credit Rating Yield AAA 3% AA 3.2% A 3.5% BBB 3.8% BB 4.5% B 5.25% a....
Credit Rating Yield AAA 3% AA 3.2% A 3.5% BBB 3.8% BB 4.5% B 5.25% a. Given the yields for bonds with different credit ratings, what would be the fair price of a 5-year maturity bond, which currently has identical risk to a bond rated ‘A’, if it has a coupon rate of 12% paid annually, and a par value of $1,000? b. What would be the price of the bond 3 years from today if the bond is expected...
Using calculating formula Credit Rating Yield AAA 3% AA 3.2% A 3.5% BBB 3.8% BB 4.5%...
Using calculating formula Credit Rating Yield AAA 3% AA 3.2% A 3.5% BBB 3.8% BB 4.5% B 5.25% a. Given the yields for bonds with different credit ratings, what would be the fair price of a 5-year maturity bond, which currently has identical risk to a bond rated ‘A’, if it has a coupon rate of 12% paid annually, and a par value of $1,000? b. What would be the price of the bond 3 years from today if the...
Based on your understanding of bond ratings and bond-rating criteria, which of the following statements is...
Based on your understanding of bond ratings and bond-rating criteria, which of the following statements is true? An indenture is a legal document that details the rights of bondholders. If the indenture includes a sinking funds provision, the bond will have more default risk. An indenture is a legal document that details the rights of bondholders. If the indenture includes a sinking funds provision, the bond will have less default risk.
HMK Enterprises would like to raise $14 million to invest in capital expenditures. The company plans...
HMK Enterprises would like to raise $14 million to invest in
capital expenditures. The company plans to issue five-year bonds
with a face value of $1,000 and a coupon rate of 3.5% (annual
payments). The following table summarizes the yield to maturity
for five-year (annual-pay) coupon corporate bonds of various
ratings.
Rating
AAA
AA
A
BBB
BB
YTM (%)
3.03.0
3.13.1
3.53.5
3.93.9
4.34.3
a. Assuming the bonds will be rated AA, what will the price of
the AA-rated bonds...
Which of the following statements is CORRECT? a. The market price of a bond will always...
Which of the following statements is CORRECT? a. The market price of a bond will always approach its par value as its maturity date approaches, provided the bond’s required return remains constant. b. If the Federal Reserve unexpectedly announces that it expects inflation to increase, then we would probably observe an immediate increase in bond prices. c. The total yield on a bond is derived from dividends plus changes in the price of the bond. d. Bonds are generally regarded...
HMK Enterprises would like to raise $10 million to invest in
capital expenditures. The company plans to issue 5-year bonds with
a face value of $1,000 and a coupon rate of 6.52% (annual
payments). The following table summarizes the yield to maturity for
5-year (annual-payment) coupon corporate bonds of various
ratings:
a. Assuming the bonds will be rated AA, what will be the price
of the bonds? (5 marks)
a. $856.32
b. $987.45
c. $999.66
d. $1,008.77
e. $1,019.88
b....
QUESTION 3 Consider the following information regarding corporate bonds: Rating Average Default Rate Recession Default Rate Average Beta |вв AAA 0.096 0.09% 0.05 B |ссс A BB AA 0.09% 0.296 0.49% 2.196 8.0% 5.2% 9.996 43.0% 1.0% 3.0% 16.0% 3.0% |1.0 0.05 0.26 0.31 0.17 0.05 Rearden Metal has a bond issue outstanding with ten years to maturity, a yield to maturity of 8.6% , and a B rating. The bondholders expected loss rate in the event of default is...
QUESTION 4 Consider the following information regarding corporate bonds: Rating AAA AA A T IAA BBB BB CCC Average Default Rate 0.0% 0.0% 0.296 0,496 2.196 5.296 9.996 Recession Default Rate 0.096 1.09 3.0% 3.096 8.0% 16.096 43.096 Average Beta 0.05 0.05 0.05 0.10 0.17 0.26 10.31 Equity Debt Rating BBB Company Market Capitalisation Total Enterprise Value ($mm) ($mm) Taggart $4,500 8,000 Transcontinental Rearden Metal $3,800 7.200 Wyatt Oil $2,400 3,800 Nielson Motors $1,500 4,400 Your estimate of the asset...
HMK Enterprises would like to raise $14 million to invest in
capital expenditures. The company plans to issue five-year bonds
with a face value of $1,000 and a coupon rate of 3.5% (annual
payments). The following table summarizes the yield to maturity
for five-year (annual-pay) coupon corporate bonds of various
ratings.
Rating
AAA
AA
A
BBB
BB
YTM (%)
3.03.0
3.13.1
3.53.5
3.93.9
4.34.3
a. Assuming the bonds will be rated AA, what will the price of
the AA-rated bonds...
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