1Indicate whether each of the following actions will increase or decrease a bonds yield tomaturity:(5)a A bonds price increase.b The companys bonds are downgraded by the rating agencies.c A change in the bankruptcy code makes it more difficult for bondholders to receivepayments in the event a firm declares bankruptcy.d The economy enters a recession.Question 2If a compans beta were to double, would it expected return double?(2)Question 3Are there conditions under which a firm might be better off if it were to choose a machine with arapid payback rather than one with a larger NPV
1Indicate whether each of the following actions will increase or decrease a bonds yield tomaturity:(5)a A
We’ll answer the first question since the exact one wasn’t specified. Please submit a new question specifying the one you’d like answered.
1.
(a) Yield-to-maturity will decrease.
There is an inverse relationship between the bond price and the yield-to-maturity. Therefore, when a bond price increases the yield-to-maturity will decrease.
(b) Yield-to-maturity will increase.
The company's bonds are downgraded by the rating agencies. It will have lower credit strength of the bond issuer and will increase risk. The bondholder will demand higher returns. Therefore, bonds yield-to-maturity will increase if the company's bonds are downgraded.
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