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Step by step
Solved in 3 steps
- 1. How do putable and callable bonds trade relative to a similar security without an embedded option? Why?Explain the use of a sinking-fund provision. How can it reduce the investor’s risk? What are protective covenants? Why are they needed? Explain the use of call provisions on bonds. How can a call provision affect the price of a bond? Explain the use of bond collateral, and identify the common types of collateral for bonds. What are debentures? How do they differ from subordinated debentures? What is a bond indenture? What is the function of a trustee with respect to the bond indenture? What are the advantages and disadvantages to a firm that issues low- or zero-coupon bonds?Explain why municiple bonds are preferred by certain types of investors.
- When it comes to bond values, what role do interest rates play? How can you value a bond if you don't know what the fundamental assumptions are.Debentures are expected to have a higher yield than secured bonds because the debentures are more risky and therefore less desirable. O TRUE O FALSE.Bonds are always a safe investment if held to maturity. O True False
