Explain why the yield spread on corporate bonds versus Treasury bonds must always be positive. How do these spreads change (a) as the bond rating declines and (b) as the time to maturity increases?
Answer to relevant QuestionsExplain why the height of the yield curve depends on inflation. Go to http://www.stockcharts.com/charts/YieldCurve.htm and click on the animated yield-curve graph (be sure JAVA is enabled on your browser). Answer the following questions: a. Is the yield curve typically upward sloping, ...How can the free cash flow approach to valuing an enterprise be used to resolve the valuation challenge presented by firms that do not pay dividends? Compare and contrast this model with the dividend valuation model. The value of common stocks cannot be tied to the present value of future dividends because most firms don’t pay dividends. Comment on the validity, or lack thereof, of this statement. You buy a stock for $40. During the next year, it pays a dividend of $2, and its price increases to $ 44. Calculate the total dollar and total percentage return and show that each of these is the sum of the dividend and ...
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