If corporate bonds are traded 12% above the government bond rate of 8% and the recovery rate on defaulted loan is 50%. What is the likelihood that the related bank loan will be defaulted on?
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- If corporate bonds are traded 4% above the government bond rate of 8% and the recovery rate on default loans is 50%. What is the probability that the borrower of this loan will default on its repayment?Suppose a company is choosing between bank loans and bonds. The interest rate in the bank loan is 3.5%, and an investment bank predicted that the company will pay close to 4% to issue a bond with the same maturity. In addition, fees are estimated to be higher for the bond issuance than for the bank loan. Explain why this company may still decide to issue the bond rather than borrowing through a bank.1. Which of the following is not a way in which banks lend short-term unsecured loans? Choices: By sending the amount earned from trust and investment products offered by the bank Through a guaranteed credit line that has a commitment fee for any unused amount for the year Through credits cards lines with a certain credit limit By lending a single date maturity loan to a debtor 2. The following are methods of acquiring funds through long-term financing, except Choices: Issuing bonds with semi-annual coupon payment at a discounted price Selling equity securities at an amount above the par value indicated in the stock certificate Issuing a note that indicates a promise to pay the indicated supplier in a future date Selling equity securities with a characteristic of both debt and equity security 3. Which is false about long-term sources of a firm's capital? Choices: Preferred shares are securities whose intrinsic value is based on prospective earnings All types of…
- Which interest rate is used on very short term loans from one bank to another? A. PRIME INTEREST RATE B.TREASURY BILL RATE C. COMMERCIAL PAPER RATE D. FED FUNDS RATEWhich interest rate is used on very short-term loans from one bank to another? A. Prime interest rate B. Commercial paper rate C. Treasury bill rate D. Fed funds rate29. Which of the following statements are true? Statement I. An interest rate reflects the rate of return that a creditor receives when lending money, or the rate that a borrower pays when borrowing money. Interest rates change over time, so does the rate earned by creditors who provide loans or the rate paid by borrowers who obtain loans. Statement II. Interest rate movements have a direct influence on the market values of debt securities, such as money market securities, bonds, and mortgages. Statement III. Interest rate movements have an indirect influence on equity security values because they can affect the return by investors who invest in equity securities. Statement IV. Since interest rates have an influence on securities, participants in financial markets attempt to anticipate interest rate movements when restructuring their investment or loan positions.
- 18. Which of the following statements are true?Statement I. An interest rate reflects the rate of return that a creditor receives when lending money, or the rate that a borrower pays when borrowing money. Interest rates change over time, so does the rate earned by creditors who provide loans or the rate paid by borrowers who obtain loans. Statement II. Interest rate movements have a direct influence on the market values of debt securities, such as money market securities, bonds, and mortgages. Statement III. Interest rate movements have an indirect influence on equity security values because they can affect the return by investors who invest in equity securities. Statement IV. Since interest rates have an influence on securities, participants in financial markets attempt to anticipate interest rate movements when restructuring their investment or loan positions. a. I,II,III b. I,II,IV c. I,III,IV d. I,II,III,IVWhich of the following is FALSE regarding bonds? Long term bonds have greater interest rate risk than do short term bonds. A bond indenture describes the terms of the bond issue. Bonds represent ownership in the company. if interest rates in the market go up, the present value of existing bonds goes down. A bond issuer is legally required to make the interest payments and repay the par value at maturity. Previous Page Next Page Page 12 of 304. We can define bond as a financial device through which a borrower (a firm or government) is obligated to pay the principal and interest on a loan at specific dates in the future. Answer questions relating to interest rates and bond prices using the following information: The price of a bond with no expiration date is $1000 and its fixed annual interest payment is $50; bond annual rate of interest is 5%. (a) If the price of this bond decreases by $250 to $750, what will its effective interest rate be for the new buyer? %, because (b) If the price of this bond increases to $1200, what will its effective interest rate be for the new buyer? (c) When bond prices go up from (a) to (b), interest rates go (up, down, nowhere). %, because
- Would Bank of America or Verizon pay the most total interest on a $5,000 bond at maturity? How much interest would that be? Bank of America would pay $ in interest on a $5,000 bond at maturity. Verizon would pay $ in interest on a $5,000 bond at maturity. So, we see Verizon would pay the most interest on $5,000 bond at maturity.1. All of the following statements are true regarding Credit Risk, except: a. Credit Risk is the risk that the borrower may not be able to repay its obligation. b. Credit risk is included in the valuation as a factor to determine the cost of lending or financing using debt. c. Credit Risk affects the valuation of Accounts Receivable. d. All of the statements are true.2. Honesty Company paid P985,221.67 for a 90-day treasury bill with an interest rate of 6% (assume 360 days).How much should Honesty receive at maturity date?1. An amortized loan means that the principal is gradually paid off during the life of the loan. True or False 2. There is no difference in value between $100 you received today and $100 you receive one year from today. True or False 3. Coupon payment of a bond doesn’t change throughout the bond life. True or False 4. Corporate bond is a short-term promissory note issued by a firm. True or False
