When the effective rate falls due to good credit, the fair value of the bond payable reflects a higher amount, producing a loss. Explain this situation.
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When the effective rate falls due to good credit, the fair
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- What is a bond? A certificate representing a loan from an investor to a corporation or government entity that makes fixed payments for a set time and eventually pays back the loan in full. A certificate of ownership in a corporation with the right to a percentage of the earnings. A payment for an investor to a corporation for the rights to future profits. A group of stocks sold together for a set price.The price of a bond with no expiration date is originally $1,000 and has a fixed annual interest payment of $150. If the price of the bond then falls by $200, what will be the interest rate yield to a new buyer of the bond? Multiple Choice 10 percent 15 percent 9.4 percent 12.5 percent 18.8 percentExplain why you agree or disagree with the following statements:A. “A bond issued by a corporation of the highest credit rating can qualify as a risk-free asset.”B. “A five-year U.S. Treasury note would qualify as a risk-free asset because of its guarantee by the U.S. government.”
- Interest-rate risk results from: Answer a. Bond prices being fixed over the life of the bond b. Inflation being uncertain c. A mismatch between an individual's investment horizon and a bond's maturity d. The fact that most people hold bonds until they matureWhat causes the yield on a discount bond to exceed the coupon rate on a bond?Interest-rate risk results from: a. Bond prices being fixed over the life of the bond b. Inflation being uncertain c. A mismatch between an individual's investment horizon and a bond's maturity d. The fact that most people hold bonds until they mature
- Stock prices fell throughout much of 2007 and 2008 and many investors decided to switch their funds into the bond market. What only about 30 percent of surveyed investors knew was that as bond prices rise, interest rates a. fall in reaction to the decreased demand for bonds. b. rise in reaction to the increased demand for bonds. c. fall in reaction to the increased demand for bonds. d. rise in reaction to the decreased demand for bonds.Answer the next question on the basis of the following information for a bond having no expiration date: bond price = $1000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent. If the price of this bond falls by $200, the interest rate will:Answer the question based on the following information for a bond having no expiration date: bond price = $1,000; bond fixed annual interest payment = $100; bond annual interest yield = 10 percent. If the price of this bond increases to $2,500, the interest yield will
- If interest rates fall after a bond issue, the bond’s price will _____. This change will be more noticeable for _________ bonds. a. decrease ... long-term b. increase ... short-term c. decrease ... short-term d. increase ... long-termBelow you will find the Demand and Supply Curves for $250,000 bonds that mature in 18 years: Qd = 400,000 – 2(P) Qs = 3(P) – 100,000 What is the current equilibrium interest rate in that bond market?Subprime mortgages are O mortgages issued to borrowers with flawed credit histories. government-backed mortgages issued by Fannie Mae and Freddie Mac. mortgages issued to borrowers who fail to document that their incomes are high enough to afford their mortgages. mortgages which are bundled together by financial institutions and sold to investors.