Why are investment-grade bonds given that name? Why are “junk bonds” also known as “high-yield bonds”?
Answer to relevant QuestionsWhy might a firm want to maintain a high bond rating? What has been happening to bond ratings in recent years? What does it mean with the horizon spreads in Figure 10.7 dip below the X-axis? Why do some feel that this was not to be the case in 2006? “Taxes on capital gains can be deferred.” Explain what is meant by this statement. Discuss the risks faced by common shareholders that are not related to the general level of interest rates. Using the regular Treasury note of problem 2; a) What is its price if investors’ required rate of return is 6 % on similar bonds? Treasury notes pay interest semiannually. b) Erron Corporation wants to issue five-year ...
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