3. Which of the following statements about the characteristics of debt and equities is true? C 1) They can both be long-term financial instruments. 2) Bond holders are residual claimants. 3) The income from bonds is typically more variable than that from equities 4) Bonds pay dividends. 5) They both involve a claim on the issuer's income 6) More than one answer is correct.

3. Which of the following statements about the characteristics of debt and equities is true? C 1) They can both be long-term financial instruments. 2) Bond holders are residual claimants. 3) The income from bonds is typically more variable than that from equities 4) Bonds pay dividends. 5) They both involve a claim on the issuer's income 6) More than one answer is correct.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter17: Financial Markets

Section: Chapter Questions

Problem 1SCQ: Answer these three questions about early-stage corporate finance: Why do very small companies tend...

See similar textbooks

Similar questions

Answer these three questions about early-stage corporate finance: Why do very small companies tend to raise money from private investors instead of through an IPO? Why do small, young companies often prefer an IPO to borrowing from a bank or issuing bonds? Who has better information about whether a small firm is likely to earn profits, a venture capitalist or a potential bondholder, and why?
From a firms point of view, how is a bond similar to a bank loan? How are they different?
1.Which of the following companies will have the highest capacity for debt assuming all other factors are held equal: Company A with a steady customer base, and large amounts of fixed capital; Company B with a steady customer base and small amounts of fixed capital; Company C with seasonal customer base and large amounts of fixed capital; Company D with seasonal customer base and small amounts of fixed capital. ? Select a Choice Below current question choices OptionA Company A OptionB Company B OptionC Company C OptionD Company D
E3 The demand curve and supply curve for one-year discount bonds were estimated using the following equations: Bd Price=-2/5Quantity+990 Bs Price=Quantity+500 As the stock market continued to rise, the Federal Reserve felt the need to increase the interest rates. As a result, the new market interest rate increased to 19.65%, but the equilibrium quantity remained unchanged. What are the new demand and supply equations? Assume parallel shifts in the equations
7-Suad decided to sell her stocks amounting to OMR 200,000 in the secondary market, as she received information that the current market price is higher. Which role of Financial Market is demonstrated in this situation? a.None of the options b.Price Discovery c.Information availability d.Both A and B 6-In which market is the financial instrument's value based on the value of an underlying asset? a.Derivative market b.Stock market c.Primary market d.Bond market 5-The difference between the deposit rate and the lending rate of a bank represents its: a.Profit b.Reserves c.Total income d.Total Expenditure
d)Assume that all the information given previously is the same and the defaultrisk premium for corporate bonds rated AAA is 1.5 percent, whereas it is4 percent for corporate bonds rated B. Compute the interest rates onAAA- and B-rated corporate bonds with maturities equal to one year, twoyears, three years, four years, five years, 10 years, 20 years, and 30 years.
Assume that in March 2019, you bought a zero-coupon bond issued by a municipal government with a face value of $10,000 and a maturity date of March 2023. a) Use a bond-pricing equation to illustrate the market price (the market value) of the zero-coupon bond in March 2020. You just have to write out the equation; you do not have to solve the equation b) Assume that you are thinking about selling the zero-coupon bond in March 2020. Use a bond-pricing equation to illustrate what will determine the actual return that you will have earned on the bond. You just have to write out the equation; you do not have to solve the equation. c) Assume that you end up selling the bond in March 2020 and that the market interest rate on the bond is lower in March of 2020 than it was in March of 2019. Briefly discuss the effects of the decrease in the bond’s interest rate on the actual return that you have earned on the bond..
2... Intro to banking 2. Suppose you bought a condo for $200,000 financing it with a $40,000 down payment of your own funds and a $160,000 mortgage loan from a bank. (10 points) a. Assume that the market value of your condo has now risen to $240,000. Ignoring interest and other costs, and assuming the loan amount is still $160,000, calculate your rate of return on your asset (ROA) and your rate of return on your equity (ROE). b. Now assume that, instead of (a), you only put down $20,000 and borrowed $180,000 to buy the condo. Assuming that the market value of your house has risen to $240,000 and ignoring interest and other costs, calculate your rate of return on your asset (ROA) and your rate of return on your equity (ROE). c. Now, instead of (a) or (b), suppose the value of the condo fell from $200,000 to $150,000. Assuming you paid $200,000, financing it with $40,000 of your own money and $160,000 with a mortgage loan, and ignoring interest and other…
Firms A and B are identical except for their capital structure. A carries no debt, whereas B carries £60m of debt on which it pays a 5% interest rate. Assume no transaction costs, no taxes and risk-free debt. The relevant numbers are provided in the following table (in £ m): A B Value of Firm 100 120 Debt 0 60 Equity 100 60 Projected earnings before interest 12 12 Interest payment 0 3 Interest rate Not Applicable 5% Please answer the following questions a) "The situation described in the table is consistent with the absence of arbitrage opportunities". True or False (T/F)? b) Which one of the two firms is relatively overvalued (A/B)? c) "B's shares carry more risk than A's shares". True or False (T/F)? d) What is the return to an investor holding a 10% stake in B (in £ '000)? e) Consider an investor who wants to purchase a 20% stake in A. If he wished to replicate B's capital structure through homemade leverage,…
13 - Which of the following statements is false?A) The circulation characteristic of negotiable documents is because it contains a right expressing monetary value.B) The right that is the subject of valuable documents sometimes arises with a bill, and sometimes it exists before the deed.C) The right in the negotiable document is a right regarding public law.D) In order for the right to be claimed in the negotiable documents, the possession on the bill must be transferred for the presentation and transfer of the bill to the debtor.E) Circulation is not an element of negotiable documents but an important feature.
First National BankAssets LiabilitiesRate-sensitive R40 million R50 millionFixed-rate R60 million R50 millionIf interest rates rise by 5 percentage points, say from 10 to 15%, bank profits (measuredusing gap analysis) will
Give typing answer with explanation and conclusion Would the proposed amendments to the income taxes paid disclosure, the rate reconciliation disclosure for entities other than public business entities, and the disclosure of pretax income (or loss) and income tax expense (or benefit) provide decision-useful information for private company investors? Please explain why or why not.