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Indicate whether each of the following actions will increase or decrease a bond’s yield to maturity: a. The bond’s price increases. b. The bond is downgraded by the rating agencies. c. A change in the bankruptcy code makes it more difficult for bondholders to receive payments in the event the firm declares bankruptcy. d. The economy seems to be shifting from a boom to a recession. Discuss the effects of the firm’s credit strength in your answer. e. Investors learn that the bonds are subordinated to another debt issue.

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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781285867977
BuyFind

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781285867977

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Chapter
Section
Chapter 7, Problem 8Q
Textbook Problem

Indicate whether each of the following actions will increase or decrease a bond’s yield to maturity:

  1. a. The bond’s price increases.
  2. b. The bond is downgraded by the rating agencies.
  3. c. A change in the bankruptcy code makes it more difficult for bondholders to receive payments in the event the firm declares bankruptcy.
  4. d. The economy seems to be shifting from a boom to a recession. Discuss the effects of the firm’s credit strength in your answer.
  5. e. Investors learn that the bonds are subordinated to another debt issue.

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Chapter 7 Solutions

Fundamentals of Financial Management (MindTap Course List)
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