Credit ratings affect the yields on bonds. Based on the scenario described in the following table, determine whether yields will increase or decreaseand whether it will be more expensive or less expensive, as compared to other players in the market, for a company to borrow money from the bondmarket.ScenarioABC Real Estate is a commercial real estate firm that primarily uses short-term financing, while its competitors primarily use long-term financing.Interest rates have recently increased dramatically.Ziffy Corp.'s credit rating was downgraded from AAA toBellgotts Inc. has increased its market share from 15% to 37% over the lastyear while maintaining a profit margin greater than the industry average.Previously, Ferro Co. had only used short-term debt financing. The companynow finances its current assets such as inventories and receivables withshort-term debt, and it finances its fixed assets such as buildings andequipment with long-term debt.Impact onYieldCost of Borrowing Money from BondMarkets

Bond Yield: The bond yield represents the return realized on the bond for the bondholder. The bond…

Credit ratings affect the yields on bonds. Based on the scenario described in the following table, determine whether yields will increase or decrease and whether it will be more expensive or less expensive, as compared to other players in the market, for a company to borrow money from the bond market.

Credit ratings affect the yields on bonds. Based on the scenario described in the following table, determine whether yields will increase or decrease and whether it will be more expensive or less expensive, as compared to other players in the market, for a company to borrow money from the bond market.

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter11: Risk-adjusted Expected Rates Of Return And The Dividends Valuation Approach

Section: Chapter Questions

Problem 11PC: Whirlpool manufactures and sells home appliances under various brand names. IBM develops and...

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The time value of money is used in calculating bond prices because: Group of answer choices A - The company might choose to repay the bonds prior to their maturity date B - Bond investors receive future payments and purchase bonds with current dollars C - The amount to be repaid at maturity will change as market rates change D - Cash interest payments to bondholders will change as market rates change
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Please describe the different type of bonds and compare the yields associated with each type of bonds?Which factors influence the yield of each type of bonds? Which type of bond is associated with the lowest yield/interest rate out of all outstanding bonds during a particular time period? How the Fed could influence the bond yields? Would you expect bond yields/interest rates to be negative in either nominal or real terms? If so, can you provide such an example?
For each of the following events, explain what the impact would be on the yield-to-maturity: The bond is downgraded by a rating agency. The economy seems to be shifting from a recession to a boom economy. The bond is subordinated to other bonds. Congressional hearings provide pressure on Matthew to significantly reduce the price on several of their products
You expect market interest rates to increase, while the rest of the market believes there will be a decrease. Which of the following statements about fixed-coupon bonds is most correct? a. Bond yields and prices are expected to rise b. At the maturity date, regardless of changes in market interest rates, a bond price will be equal to the face value plus the coupon. c. You expect the company to increase the coupon payment in response to the increase in market rates. d. As the coupons are fixed, the interest rate change will have no impact on the bond. e. You should invest in long-term bonds rather than short-term securities
Suppose that the yield of bonds issued by firms XYZ decreased. Which of the following the scenario is the LEAST likely one to have caused this decrease? 1(a) The firm's credit rating went up. (b) The firm's collateral value went up. (c) Investors’ demand for assets went up. (d) A lot of other firms started to issue bonds.
Let's say that the data shows how the spread between the interest rates on corporate bonds and U.S. treasury bonds has been very large during the Covid - 19 pandemic . What would explain this difference ? Use the bond supply and demand analysis to answer this question . Be as specific as you can be and make sure you explain the channels clearly?
You review the characteristics of a recent corporate bond issue and notice that the issuing firm's Debt to Equity (D/E) ratio is higher than the industry average, while its Return on Equity (ROE) is lower than the industry average. If bonds issued by other firms with industry average D/E and ROE ratios have a BBB rating, you can draw the following conclusion: a. This bond is likely to have a higher rating (A or above). b. This bond is likely to have a lower rating (BB or below). c. This bond will also have a BBB rating.
Amazon has a better credit profile amd higher rating than the Gap. As a result, investors can expect a higher yield to maturity on Amazon’s bonds, which are AA-rated, than the Gap which is rated B+. True or False.
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