3. Which is not considered as a debt security issued by privateentities?a. Straight bondsb. Floating-rate corporate notesc. Commercial paperd. Acceptancee. All of the abovef. None of the aboveWhich is least likely correct about security valuation?a. The calculated or determined value considers the stream offuture cash flows.b. The calculated or determined value equals the market price.c. The calculated or determined value considers the risksinvolved and the opportunity cost.d. The calculated or determined value allows the investors toevaluate whether a security is overvalued or undervalued.e. All of the above

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Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Which is not considered in bond valuation?a. The required rate of return of the investors which considers all risk factors and opportunity costs.b. The streams of future cash flows that would include the interest and maturity value.c. The maturity or the term of the bond.d. The date of issuance for the bond and the publication for the public offering.e. All of the abovef. None of the above
Quoted interest rates are rates stated in the tenor or contract of a particular security. All of the following are true about quoted rates, except: Nominal rates for both government and corporate issued securities have inflation premiums. The liquidity risk premium is used to compensate investors for the possibility of difficulty in converting the security into cash The short-term government securities do not possess any liquidity risk All long-term securities, regardless of the issuing entity, possess risk of changes in prices reflected in the presence of default risk premium
Which of the following about Treasuy inflation protected securities is NOT true: O Treasury security that is indexed to inflationO Protect investors from the negative effects of inflationO Considered a low-risk investmentO Traded in money market
1. Under what conditions would the yield-to-maturity and current yield of a bond be equal? Group of answer choices a. The bond is priced at par b. The bond is priced at a discount c. Insufficient information d. The bond is priced at a premium 2. Which of the following is correct about the risk-free rate as used in valuing equity instruments? Group of answer choices a. The risk-free rate accounts for the rate of return or yield of a government instrument which does not carry any risk. b. The risk-free rate used for valuing equity instruments is normally the yield of a long-term government security. c. The risk-free rate used for valuing equity instruments is the same as that used for valuing short-term debt instruments. d. The risk-free rate accounts for the risks related to government securities which is composed of credit-spread, maturity risk premium and the real risk-free rate. 3. Berg Inc. has just paid a dividend of P2.00. Its stock is now selling…
In considering the market-based approach to measuring credit risk, choose all statements that are correct: a) The Merton model is useful to price defaultable debt as long as the underlying company has exchange-traded stocks. b) In the Merton model, the only unknown parameter is the volatility of firm equity c) In the Merton model, the only unknown parameter is the volatility of firm value, which comprises equity and debt. d) CDS spreads cannot be used to imply default probabilities because recovery rates are variable
Which of the following statements is most correct? Group of answer choices A debenture is a secured bond that is backed by some or all of the firm’s fixed assets. Junk bonds typically have a lower yield to maturity relative to investment grade bonds. Subordinated debt has more default risk than senior debt. All of the statements above are correct. None of the statements above is correct.
1. A type of risk that relates to the changes in the market value of commodities that diminishes the power of money in relation to its ability to purchase goods and services. A. Default risk B. Interest-rate risk C. Purchasing power risk D. Liquidity risk 2. Bonds, a source of long-term financing, are long-term debt instruments. They are similar to term loans, except that they ae usually offered to the public and sold to many investors. Among the advantages (to the issuer) of issuing bonds are as follows, except A. Cost of debt is limited- bondholders usually do not participate in the superior earning of the firm. B. Interest paid on debt (bonds) is tax deductible C. Debt adds risk to a firm D. Basic control of the firm is not shared with the debt holders. 3. Cost of capital is the: A. amount the company must pay for its plant assets. B. dividends a company must pay on its equity securities. C. cost the company must incur to obtain…
The issuance costs of new debt securities can be ignored since those costs will not be reflected in the yield to maturity of the debt in the future. Select one: a. False b. True
Which of the following statements is incorrect? Group of answer choices Unsystematic risk can be eliminated by holding a diversified portfolio. Income taxes have the effect of increasing the cost of debt for a firm. All the answers are correct except one. Accounting balance sheets reflect book values. The current cost of debt for a publicly traded bond is derived from its yield to maturity calculation.
Nominal interest rates are the rates stated or quoted in the terms or contract of a particular security. Which is false about the factors that influences nominal interest rates? a. Government issued securities will only include maturity risk premium if the security is a long-term one b. The liquidity risk premium which is present in all corporate securities are used to compensate investors for the possibility of difficulty in converting the security into cash c. The short-term government securities do not have a real risk-free rate component d. Regardless of whether issued by the government or corporation, nominal rates have inflation premiums
Please explain why this statement is (False). Ignoring default risk, if a bond's expected return is greater than its required return, then the bond's market price must be greater than the present value of the bond's cash flows.
Which of the following statements is false? A. Banks have high levels of liquidity assets and stable funding since the financial crisis. B. Compared with bonds with short-term duration, bonds with long-term duration have uncertainty regarding future creditworthiness. C. Expected loss can decrease with an increase in a bond’s recovery rate. D. Macaulay duration is calculated as modified duration divided by one plus the bond’s yield to maturity.

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3. Which is not considered as a debt security issued by private entities? a. Straight bonds b. Floating-rate corporate notes c. Commercial paper d. Acceptance e. All of the above f. None of the above