When prevailing market rates decline over the time an investor owns a bond, there is often an opportunity to receive a capital gain on the sale of the bond. True False
Q: Interest-rate risk results from: a. Bond prices being fixed over the life of the bond b. Inflation…
A: Interest rate risk refers to the sensitivity of the bond prices to the interest rate changes. There…
Q: A general rule in bond valuation is that a decline in interest rates causes bond prices to a. rise…
A: Bond is a debt fixed interest bearing instrument that is issued by the company to raise funds from…
Q: As market rates of interest rise, investors move their funds into bonds, thus increasing their price…
A: Market interest rates are based on the market conditions. It gets affected with the market inflation…
Q: It's important for investors to understand what a stock's yield is and why it matters. Define and…
A: Introduction: The earnings made and realized on an investment over a given period are called…
Q: Why does the Investors often are reluctant to convert bonds to stock, even when share prices have…
A: Investors often are reluctant to convert bonds to stock, even when share prices have risen…
Q: How Interest Rates Affect Bond Prices. Explain the impact of a decline in interest rates on an…
A: Bond prices are dependent on interest rate in the market and prices goes up and down depending on…
Q: Which of the following events would make it more likely that a company would choose to call it’s…
A: Bond price implies for the consideration paid by an investor for acquiring bond. In provided case,…
Q: Investing in bonds is generally less risky than investing in stocks. True False
A: Bonds are the liabilities of the company which is issued to raise the funds required to finance the…
Q: Which one of the following statements is correct? Multiple Choice Short-term investments tend to…
A: Because you have posted multiple questions, we will answer the first question only, for the…
Q: A call provision on a bond allows the issuer to redeem the bond at will. Investors do not like call…
A: bond is a debt instrument issued by the firm to raise capital and have no effect on ownerships of…
Q: One often finds that a company’s bonds have a higher yield than its preferred stock, eventhough an…
A: Bonds are the financial instruments which are used by companies to raise funds by issuing units at…
Q: What are the advantages and disadvantages of investing in stocks vs bonds
A: Investing in stocks has the following risk: Unlike bonds, investment in common stocks does not…
Q: You want to invest in a company that guarantees your money's interest payments and returns at the…
A: Bonds are external financing funds taken by the company while, stocks are owners' funds that are…
Q: If a company’s newest product flops in the marketplace, what effect is thatlikely to have on the…
A: Bond is debt-instrument that is used by entities to raise debt funds from public-at-large. Bonds pay…
Q: If a firm increases its financial risk by selling a large bond issue that increases its financial…
A: Financial risk is an intrinsic component of investing and applies to organisations, governments,…
Q: A “buy-and-hold” investor purchases a fixed-rate bond at a discount and holds it until it matures.…
A: An investor who invests in a bond can get returns in different forms and all the forms are related…
Q: What are the advantages and disadvantages of investing in the stock market vs the bond market?
A: Investing in the stock market is purchasing corporate shares and gaining control of the firm.…
Q: As the bond discount is amortized, the carrying value of the bonds will increase. True False
A: “Since you have asked multiple question, we will solve the first question for you. If you want any…
Q: Explain why bond prices fluctuate in response to changing interest rates. What adverse effect might…
A: Bonds are a type of debt security which is issued by government or corporates to collect funds from…
Q: All else equal, the holder of a fairly priced premium bond must expect a capital loss over the…
A: Recall the property of the bond: A bond is pulled to par on maturity. Just a day before maturity,…
Q: Why are long-term corporate bonds higher risk than short-term corporate bonds? Provide an example
A: Longer term bonds have higher risks than short term bonds due to their duration and time period.…
Q: Explain the importance of common stock yield to investors. Define and explain a bond yield. What…
A: Stock Yield: The dividend yield, which is expressed as a percentage, is the difference between the…
Q: THE TERM STRUCTURE OF INTEREST RATES The term structure theory assumes that investors in bonds are…
A: The yield curve, also known as the term structure of interest rates, illustrates the interest rates…
Q: If junk bonds are “junk,” then why do investors buythem
A: Junk bonds are a type of bond which are regarded as non-investable bonds by the credit rating…
Q: Which of the below statements is TRUE? O a. Frequently, the ability of an issuer to make interest…
A: Rating agencies are those agencies which assign credit ratings to the issuer of securities.…
Q: An investor that owns convertible bonds in a deteriorating company would realize a higher return on…
A: Return on investment: It implies to the rate that an investor expects to earn and receive on the…
Q: If an investor expect interest rates to go up, the investor should sell a long-term bond now. True…
A: Interest rate risk refers to the sensitivity of the bond prices to the interest rate changes. There…
Q: Explain the use of a sinking-fund provision. How can it reduce the investor’s risk? What are…
A: 1. Sinking funds adds an element of safety for corporate bond issue to investors. Sinking fund…
Q: ____ occurs when a firm calls a relatively high interest rate issue and replaces it with a lower…
A: There are different concepts in bonds
Q: Defining common stock yield and its importance to investors Define and explain a bond yield's…
A: "As per the policy of our company, we are allowed to answer only the first three sub-parts in case…
Q: What causes a gain or loss on the sale of a bond investment? Group of answer choices when the…
A: Bond Investment Investment Bonds are a kind of financial instrument in which the authorized issuer…
Q: True or False An asset or stock with a beta less than 1.0 means the stock is more risky than the…
A: Part (a): The statement is False. Beta is considered as the best measure to determine the volatility…
Q: Which of the following events would make it more likely that a company would choose to call its…
A: Callable Bonds are the bonds that are issued with a privilege of redeeming early before expiry. A…
Q: What are the characteristics of a zero-coupon bond, and why do investors purchase them when they…
A: Zero coupon bonds are bonds that do not pay interest during the life time of bonds.
Q: Short-term investments are also called marketable securities. True or False True False
A: Marketable securities are those assets or securities which can be readily converted into cash. These…
Q: Why are bonds' typical rates of return lower than those of stocks
A: Defined: Bonds are a kind of fixed-income instrument that represents a loan from an investor to a…
Q: An increase in interest rates in the bond market reduces adverse selection problems. Select one: O…
A: Bond is debt instrument used by organizations to raise debt funds from public. Bondholders are paid…
Step by step
Solved in 2 steps
- How does one determine the required rate of return of a bond, the cash flows of a bond and the value of a bond? How do you determine if a bond is a good investment? Are long-term bonds riskier than short-term bonds? Explain and Discuss.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 FalseA corporate bond's return becomes less uncertain as default risk increases. True or False. Explain your answer
- What causes a gain or loss on the sale of a bond investment? Group of answer choices when the selling company negotiates a better price when the selling price of the bond differs from the book value (cost) of the bond when the selling company has unamortized discounts when the selling company has unamortized premiumsTo which type of risk are holders of long-term bonds more exposed? Short-termbondholders?How do stocks and bonds differ in terms of the future payments that they are expected to make? Which type of investment (stocks or bonds) is considered to be more risky? Given what you know, which investment (stocks or bonds) do you think commonly goes by the nickname “fixed income”?
- How Interest Rates Affect Bond Prices. Explain the impact of a decline in interest rates on an investor’s required rate of return.1. A “buy-and-hold” investor purchases a fixed-rate bond at a discount and holds it until it matures. Which of the following least likely contributes to the investor’s total return, assuming all payments are made as scheduled? A. Capital gain B. Principal payment C. Reinvestment of coupon payments D. Coupon incomeWhat is the mispricing if an Equity Premium exists? Should more bonds or more equity be added to a portfolio? Please provide references.
- You want to invest in a company that guarantees your money's interest payments and returns at the maturity date as an investor. Which is the best option for this investment? a. bonds b. stocks c. stocks and bonds d. neither stocks nor bondsInterest-rate risk results from: Answer a. Bond prices being fixed over the life of the bond b. Inflation being uncertain c. A mismatch between an individual investment horizon and a bond maturity d. The fact that most people hold bonds until they matureExplain the differences between a bond's yield to maturity (YTM) and its yield to call (YTC). Is there a reason why the return to the investor would alter if a bond is called? Please provide justification for your response.