Please explain the reason of each option. The issuer of a bond that fails to pay the
Question:
Please explain the reason of each option.
The issuer of a bond that fails to pay the promised future cashflows in full can be seen as an example of:
a) None of the listed options
b) The issuer of the bond cannot lend and borrow money at the risk free rate
c)Interest rate risk
d) Interest rate and default risk
Which one of the following bonds is the least sensitive to interest rate risk?
a) 7-year with a face value of 1000; 10% coupon
b) 12-year with a face value of 1000; 5% coupon
c) 7-year with a face value of 1000; 4% coupon
d) 15-year with a face value of 1000; 6% coupon
Assume you can invest in Type S firm's (only has systematic risk) or in Type U firm's(only has unsystematic risk). If the risk-free rate is 2% and the risk premium is 7%than the:
a) Expected return for Type U firm's is 2% and the expected return for Type Sfirm's is 9%
b) Expected return for Type U firm's is 7% and the expected return for Type Sfirm's is 9%.
c) Expected return for Type S firm's is 9% and the expected return for Type Ufirm's is 0%.
d) Expected return for Type S firm's is 7% and the expected return for Type Ufirm's is 0%
Which one of the following statements concerning bond ratings is correct?
a) Investment grade bonds will have a lower yield to maturity than speculative bonds as investment grade bonds have a lower probability of non-repayme
b) Investment grade bonds are rated BB or higher by Standard & Poor's
c) Bonds with the highest rating are more likely to default.
d) Bond ratings assess both interest rate risk and default risk