Homework Answers
The correct answer is option b i.e. Spreads decreases as rating levels improve (going from CCC to AAA), which indicates that Spreads are inversely related to the rating levels.
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QUESTION 5 What is the relationship between bond credit spreads and rating levels? O d. Spreads...
QUESTIONS What is the relationship between bond credit spreads and rating levels? Spreads increase as rating levels...
QUESTIONS What is the relationship between bond credit spreads and rating levels? Spreads increase as rating levels improve (going from CCC to MMA). Spreads decrease as rating levels improve (going from CCC to AAA) The relationship has no pattern d. There is no relationship QUESTION 6 The government of Venezuela announces that its GDP is declining, devalues its currency, and increases currency controls. You have also read reports about civil unrest after a recent election. What do you expect the...
Question 16. Describe the relationship between discount rate and bond price Question 17 Assume a bond...
Question 16. Describe the relationship between discount rate and bond price Question 17 Assume a bond has a put and a call provision. Describe what the bond holder should do when market interest rates increase? When the rates decrease? Describe what the bond issuer should do when market interest rates increase? When the rates decrease?
A firm with an AA-rating plans to issue one million units of a 10 year-4% bond...
A firm with an AA-rating plans to issue one million units of a 10 year-4% bond with face value $100. After the financial crisis this firm is downgraded to a B-rating. The yield curve increases 0.2% per year. The yield for year 1 is yı=1%, for year 2 is y2=1.2%, y3=1.4% and so on and y10=2.8%. The default spreads are given in the table below. (a) What is the initial amount (before downgrading) the firm wants to raise? [2p] How...
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...
what credit quality does this imply? -AA -A -BBB -BB clear picture, what credit quality does...
what credit quality does this imply?
-AA
-A
-BBB
-BB
clear picture, what credit quality does this imply?
AA,A,BBB or BB
QUESTION 4 XYZ Corp bonds have 3 years until maturity and are trading at 10 bes over treasures. What credit quality does this imply Use the chart below to answer the question Average US corporate bond spread tables Table 26: Average US corporate bond spreads across gross rating categories per maturity bucket (1997-2003). Open table as spreadsheet 1-3 years...
10. Bond ratings Aa Aa Rating agencies-such as Standard & Poor's (S&P), Moody's Investor Service, and...
10. Bond ratings Aa Aa Rating agencies-such as Standard & Poor's (S&P), Moody's Investor Service, and Fitch Ratings-assign credit ratings to bonds based on both quantitative and qualitative factors. These ratings are considered indicators of the issuer's default risk, which impacts the bond's interest rate and the issuer's cost of debt capital. Based on these ratings, bonds are classified into investment-grade bonds and junk bonds. Which of the following bonds is likely to be classified as a junk bond? OA...
just question 35 35. Credit Risk. A bond's credit rating provides a guide to its risk....
just question 35
35. Credit Risk. A bond's credit rating provides a guide to its risk. Suppose that long-term bonds rated Aa currently offer yields to maturity of 7.5%. A-rated bonds sell at yields of 7.8%. Sup. pose that a 10-year bond with a coupon rate of 7.6% is downgraded by Moody's from an Aato A rating. (L06-5) a. Is the bond likely to sell above or below par value before the downgrade? b. Is the bond likely to sell...
8-1 What is the relationship between…. a) bond prices and yields? b) bond prices and interest...
8-1 What is the relationship between…. a) bond prices and yields? b) bond prices and interest rates? c) why are bond prices important to many financial institutions? 8-2 Is the price of a long term bond or the price of a short term security more sensitive to a change in interest rates? Why? 8-3 Why does the required rate of return for a particular bond change over time? 8-4 Assume that inflation is expected to decline in the near future....
Question 5 5 pts What is a constraint force? A constraint relationship between two bodies. O...
Question 5 5 pts What is a constraint force? A constraint relationship between two bodies. O A force that constrains a rigid body. A force between bodies inside and outside of the system boundary. O A force associated with maintaining a constraint. Question 6 5 pts What is an external force? O A force that acts on an external surface. A force generated between a body outside and one inside the system boundary. O An active force. A constraint force....
QUESTIONS What is the relationship between bond credit spreads and rating levels? Spreads increase as rating levels improve (going from CCC to MMA). Spreads decrease as rating levels improve (going from CCC to AAA) The relationship has no pattern d. There is no relationship QUESTION 6 The government of Venezuela announces that its GDP is declining, devalues its currency, and increases currency controls. You have also read reports about civil unrest after a recent election. What do you expect the...
Question 16. Describe the relationship between discount rate and bond price Question 17 Assume a bond has a put and a call provision. Describe what the bond holder should do when market interest rates increase? When the rates decrease? Describe what the bond issuer should do when market interest rates increase? When the rates decrease?
A firm with an AA-rating plans to issue one million units of a 10 year-4% bond with face value $100. After the financial crisis this firm is downgraded to a B-rating. The yield curve increases 0.2% per year. The yield for year 1 is yı=1%, for year 2 is y2=1.2%, y3=1.4% and so on and y10=2.8%. The default spreads are given in the table below. (a) What is the initial amount (before downgrading) the firm wants to raise? [2p] How...
what credit quality does this imply?
-AA
-A
-BBB
-BB
clear picture, what credit quality does this imply?
AA,A,BBB or BB
QUESTION 4 XYZ Corp bonds have 3 years until maturity and are trading at 10 bes over treasures. What credit quality does this imply Use the chart below to answer the question Average US corporate bond spread tables Table 26: Average US corporate bond spreads across gross rating categories per maturity bucket (1997-2003). Open table as spreadsheet 1-3 years...
10. Bond ratings Aa Aa Rating agencies-such as Standard & Poor's (S&P), Moody's Investor Service, and Fitch Ratings-assign credit ratings to bonds based on both quantitative and qualitative factors. These ratings are considered indicators of the issuer's default risk, which impacts the bond's interest rate and the issuer's cost of debt capital. Based on these ratings, bonds are classified into investment-grade bonds and junk bonds. Which of the following bonds is likely to be classified as a junk bond? OA...
just question 35
35. Credit Risk. A bond's credit rating provides a guide to its risk. Suppose that long-term bonds rated Aa currently offer yields to maturity of 7.5%. A-rated bonds sell at yields of 7.8%. Sup. pose that a 10-year bond with a coupon rate of 7.6% is downgraded by Moody's from an Aato A rating. (L06-5) a. Is the bond likely to sell above or below par value before the downgrade? b. Is the bond likely to sell...
Question 5 5 pts What is a constraint force? A constraint relationship between two bodies. O A force that constrains a rigid body. A force between bodies inside and outside of the system boundary. O A force associated with maintaining a constraint. Question 6 5 pts What is an external force? O A force that acts on an external surface. A force generated between a body outside and one inside the system boundary. O An active force. A constraint force....
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