Bondholders are assured of protection against inflation if they hold:
Answer(s): D
The interest payments on indexed or purchasing power bonds are based on an inflation index, such as the consumer price index. Thus, interest paid to bondholders rises automatically when the inflation rate rises.
From the viewpoint of the investor, which of the following securities provides the east risk?
Answer(s): A
A mortgage bond is secured with specific fixed assets, usually real property. Thus, under the rights enumerated in the bond indenture, creditors will be able to receive payments from liquidation of the property in case of default. In a bankruptcy proceeding, these amounts are paid before any transfers are made to other creditors, including those preferences. Hence, mortgage bonds are less risky than the others listed.
Which of the following classes of securities are listed in order from lowest risk/opportunity for return to highest risk/opportunity for return?
The general principle is that risk and return are directly correlated. Corporate first mortgage bonds are less risky than income bonds or shares because they are secured by specific property. In the event of default, the bondholders can have the property sold to satisfy their claims. Holders of first mortgages have rights paramount to those of any other parties, such as holders of second mortgages. Income bonds pay interest in the event the corporation earns income. Thus, holders of income bonds have less risk than shareholders because meeting the condition makes payment of interest mandatory. Preference shareholders ro_0icc dividends only if they are declared, and the directors usually have complete discretion in this matter AlaI). shareholders have claims junior to those of debit holders if the entity is liquidated.
An entity is arranging debt financing for the purchase of a new piece of equipment that has a 5- year expected useful life.Which of the following alternative financing arrangements has the lowest effective annual percentage rate if each has a quoted nominal rate of 9.5%?
For any given quoted nominal rate, the least frequent compounding is associated with the lowest effective annual percentage cost Annual compounding is less frequent than semiannual, quarterly, or monthly. The term of the b_' _in is not relevant to the calculation of the effective annual percentage cost of financing.
How much must the steel: to worth at expiration for a call holder to break even if the exercise price is US $60 and the call premium was U` $ 3?
Because the call premium is US $3, the stock price must be at least US $3, the stock price must be at least US $63 $60 exercise price + $3 call premium).AA Company has purchased one share of QQ Company ordinary stock and one put option. It has also sold one call option. The options are written on one share of QQ Company ordinary stock and have the same maturity date and exert ice price. The exercise price US $40) is the same as the share price. Moreover, the options are exercisable only at the expiration date.
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