CORPORATE FINANCE (LL)-W/ACCESS
11th Edition
ISBN: 9781259976360
Author: Ross
Publisher: MCG
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Chapter 15, Problem 13CQ
Callable Bonds Do you agree or disagree with the following statement: In an
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What causes a gain or loss on the sale of a bond investment?
Group of answer choices
when the selling company negotiates a better price
when the selling price of the bond differs from the book value (cost) of the bond
when the selling company has unamortized discounts
when the selling company has unamortized premiums
Which of the following sentences about bonds’ optional features is true? Explain
A.A borrower will be willing to pay a higher yield on a bond with a put option.
B.A callable bond allows the borrower to make an early repayment of the principal.
C.The yield on a puttable bond will be higher than the yield on a bond with similar characteristics but no optional features.
D.An investor will be willing to pay more for a bond with a call back provision.
Two bonds, bond A and bond B, are identical except that bond A is convertible and bond B is not. Which bond will have the higher price? Why
Chapter 15 Solutions
CORPORATE FINANCE (LL)-W/ACCESS
Ch. 15 - Bond Features What are the main features of a...Ch. 15 - Prob. 2CQCh. 15 - Preferred Stock Preferred stock doesnt offer a...Ch. 15 - Preferred Stock and Bond Yields The yields on...Ch. 15 - Prob. 5CQCh. 15 - Call Provisions A company is contemplating a...Ch. 15 - Prob. 7CQCh. 15 - Preferred Stock Do you think preferred stock is...Ch. 15 - Long-Term Financing As was mentioned in the...Ch. 15 - Internal versus External Financing What is the...
Ch. 15 - Prob. 11CQCh. 15 - Classes of Stock Several publicly traded companies...Ch. 15 - Callable Bonds Do you agree or disagree with the...Ch. 15 - Bond Prices If interest rates fall, will the price...Ch. 15 - Sinking Funds Sinking funds have both positive and...Ch. 15 - Prob. 1QPCh. 15 - Prob. 2QPCh. 15 - Prob. 3QPCh. 15 - Prob. 4QPCh. 15 - Financial Leverage Kiedis, Corp., has...Ch. 15 - Financial Leverage Frusciante, Inc., has 290,000...Ch. 15 - Financial Leverage Harrison, Inc., has the...Ch. 15 - Valuing Callable Bonds KJC, Inc., plans to issue 5...Ch. 15 - Valuing Callable Bonds New Business Ventures,...Ch. 15 - Valuing Callable Bonds Bowdeen Manufacturing...Ch. 15 - Prob. 11QPCh. 15 - Prob. 12QP
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- Some market participants say that convertible bonds are “debt when you want them to be equity, and equity when you want them to be debt”. Explain why this would be the case.arrow_forwardWhich of the following is not an effect of a call provision? A. Issuer can refund the bond issue if rates decline. B. Requires the issuer to pay off the loan over its life rather than all at maturity. C. Bond investors require higher yields on callable bonds D. Upon calling bonds the issuer must pay call premium to bond holder E. All of the above are effects of a call provisionarrow_forwardCan I use the yield to maturity (YTM) on a bond issued by the company as the cost of debt? A Yes, you can use the YTM B No, you cannot use the YTM C Only if the bond is liquid and has not special feature embedded in it D There is not enough information to answer this problemarrow_forward
- What economic circumstances might cause investors to take advantage of a bond's convertible feature?arrow_forwardCallable bonds provide benefit to the______ and hence offer_______rate of return than non-callable bonds. O issuer, lowerO issuer, higherO holder, lowerO holder, higherarrow_forwardAn investor believes that a bond may temporarily increase in credit risk. Which of the following would be the most liquid method of exploiting this?a. The purchase of a credit default swap.b. The sale of a credit default swap.c. The short sale of the bond.arrow_forward
- Consider the investors who purchase callable bonds. Usually, the investors will execute the call provision if interest rates rise so that they can get the face value amount back and reinvest it elsewhere at higher rates. True or Falsearrow_forwardAll else equal, which of the following factors would cause a bond to have a higher yield? I. A bond with a higher rating (vs. a bond with a lower rating) II. A callable bond (vs. a non-callable bond) III. A Debenture (vs. an asset-backed bond)arrow_forwardA call provision on a bond allows the issuer to redeem the bond at will. Investors do not like call provisoion and so require higher interest on callable bonds. Why do issuers continue to issue callable bonds anyway?arrow_forward
- Briefly explain the following statement: Although long-term bonds are heavily exposedto interest rate risk, short-term T-bills are heavily exposed to reinvestment rate risk. Thematurity risk premium reflects the net effects of those two opposing forces.arrow_forwardIf bonds are issued at a discount, it means that the a. bondholder will receive effectively less interest than the contractual rate of interest b. market interest rate is lower than the contractual interest rate c. financial strength of the issuer is suspect d. market interest rate is higher than the contractual interest ratearrow_forwardDiscuss the functioning and merits of callable and puttable bonds from an investor’s perspective. Discuss how the price of a puttable bond will differ from the price of a similar, plain vanilla bond and the main determinants of this price difference. In which market environment does the issuance of a callable bond make more sense from a corporate issuer’s perspective?arrow_forward
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Journalizing Bonds Payable/Amortization of a Premium; Author: TLC Tutoring;https://www.youtube.com/watch?v=5gEpAFFnIE8;License: Standard YouTube License, CC-BY
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