Question

Bill and Edna had been married two years and had just reached the point where they had enough savings to start investing. Bill's uncle Dave told them that he had recently inherited some very rare railroad bonds from his grandmother's estate. He wanted to help Bill and Edna get a start in the world and would sell them 50 of the bonds at $100 each. Uncle Dave pointed out that "United States of America" was printed prominently at the top and that the U.S. government had established a sinking fund to retire the old railroad bonds. A sinking fund is a fund established for the purpose of repaying the debt. It allows the organization (the U.S. government, in this example) to set aside money over time to retire the bonds. All Bill and Edna needed to do was hold on to them until the government contacted them, and they would eventually get the full $1,000 for each bond. Bill and Edna were overjoyed - until a year later when they saw the exact same bonds for sale at a coin and stamp shop priced as "collectors' items" for $9.95 each!

Requirements:

1. If a company goes bankrupt, what happens to the bonds it issued and the investors who bought the bonds?

2. When investing in bonds, how can you tell whether the bond issue is a legitimate transaction?

3. Is there a way to determine the relative risk of corporate bonds?

Answer 1

Refer below image for the above mentioned questions.

Answer:- no bought the bonds ? in which the remaining assers a company goes bankrupt, what happens to the bonds it issood and the investors who bought the When a company goes bankrupt there is a court settlemen e remaining assets of the company are distributed . to to investors investor es s creditors, creditors, o according to specified priority Equity investors often lose their entire investment of a Bond holders holders may Settlement receive a may receive a the amount owned, or in some cases, nothing at all. once all settlements are legally concluded any remaining bonds have no value, except in some cases, as Collectors' items • you tell whether the Ô when issue investing is a in bonds, how can legitimate transaction 2 Stocks and bonds through a licensed receive a Brokerage owner. The company should normally be purchased only Securities dealer. Investors should always Statement showing their name as should be listed on the bond market. 6 Is there a way to determine the relative risk of corporate bonds? Bonds are given a grade to indicate their credit quality. private independent rating services such as Standard & Poor's, Moodly and Fitch provide these evaluations of a bond issuers financial strength, cors its ability to pay a bonds principal and interest in a timely fashion Bond ratings are expressed as letters Ranging from And, which is the highest grade, to c (junk), which is the lowest grade went rating Services use the same letter grades, but they use various combinations of upper and lower letters to differentiate themselves.