Question

Q1. The Allied Waste bond has a ___________coupon rate (also referred to as the stated rate or the face rate) that determines the (___________ / effective interest rate). An investor/creditor holding a $100,000 Allied Waste bond will receive ___________ in interest payments each year.
Q2. The Allied Waste bond is currently rated a B+ and returning an ___________yield,
Whereas the Trump AC bond is rated ___________and returning a ___________ yield.
The CCC+ rating indicates (___________/ less) financial risk than a B+ rating. Therefore, to attract investors/creditors the Trump AC bond must offer a (___________/ lower) rate of return (yield).
Q3. An investor/creditor purchasing the Allied Waste bond is expecting an ___________annual return. Assuming investments with the same amount of risk, an investor/creditor would prefer a (___________/ low) yield while the issuing corporation would prefer a (high / ___________) yield.
Q4. The amount paid by the issuing corporation at maturity is referred to as the face value, the par value, and the maturity value. Bond bid (selling) price is quoted as a percentage of par.
For example, the Bid Price of the Allied Waste bond is 104.50. This indicates an investor/creditor could purchase or sell a $100,000 Allied Waste bond for $104,500. ($100,000 x 104.50%). This bond is selling at a (___________/ par / discount).
A $100,000 Trump AC bond would sell for ___________. This bond is selling at a (premium / par / ___________).
Q5. The Allied Waste bond is selling at a premium because the coupon rate (stated rate, face rate) is (___________/ less than) the yield (market rate, effective rate) for this investment. To achieve the (higher / ___________) yield, the investor/creditor pays the issuing corporation an additional amount (premium) at the beginning of the investment.
The Trump AC bond is selling at a discount because the coupon rate (stated rate, face rate) is (greater than / ___________) the yield (market rate, effective rate) for this investment. To achieve the (higher / ___________) yield, the initial investment of the investor/creditor is less than face value (discount) and at maturity the higher face value is received.
Q6. Would you prefer to invest in the Allied Waste or the Trump AC bond? Why?


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  • CreatedSeptember 17, 2015
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