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When interest rates rise, bond refunding becomes quite popular. Select one: True O False
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- Consider the investors who purchase callable bonds. Usually, the investors will execute the call provision if interest rates rise so that they can get the face value amount back and reinvest it elsewhere at higher rates. True or FalseWhen interest rates are low, buy bonds. True Falsed. How does the credit spread change with the bond rating? Why? (Select the best choice below.) A. The credit spread increases as the bond rating falls because lower-rated bonds are riskier. B. The credit spread decreases as the bond rating rises because higher-rated bonds are riskier. C. The credit spread increases as the bond rating rises because higher-rated bonds are riskier. D. The credit spread decreases as the bond rating falls because lower-rated bonds are riskier.
- A strip bond is Select one: O a. a financial tool that has an unknown payout b. a long term version of the treasury bill O c. a high end savings bond O d. a low yield bondDescribe the relationship between bond prices and inclation. would you be more inclined to buy bonds if you anticipate interest rates to rise fall.Explain how does a bond par value differs from its market value? Are variable rate bonds attractive to investors who expect the interest rates to decrease? Explain. Would a firm that needs to borrow funds consider issuing variable rate bonds if it expects interest rates to decrease in the future? Explain.
- If two bonds are said to be perfect substitutes to the investors, then these two bonds offer the same ______ to the investors. interest rates returns face values expected returnsExplain whether the following statements are true or false. Justify your answer. a) If interest rate increase the price of a shorter maturity bond will decrease more then a longer maturity bond.What is the difference between face rate and market rate, and which rate would be higher if a bond is issued at a discount?
- All else the same, a will decrease the required return on a bond. Select one: O a. sinking fund O b. increase in the size of a bond issuance O c. lower bond rating O d. call provision O e. increase in inflationwhile putable bonds are beneficial to the investor when interest rates go down, the downside is that they benefit the issuer when rates go up. True or False? Question 15Answer a. True b. FalseAn investor believes that a bond may temporarily increase in credit risk. Which of the following would be the most liquid method of exploiting this?a. The purchase of a credit default swap.b. The sale of a credit default swap.c. The short sale of the bond.