aliswer for the question. Each ques 1. The Walthers Company has a semi-annual co

Question

aliswer for the question. Each ques 1. The Walthers Company has a semi-annual coupol onth market rate of interest will have a) increase the market price b) decrease the market price a semi-annual coupon bond outstanding. A decrease in the the follo ) decrease th market price e which one of the following effects on this bond? c) increase the coupon rate d) decrease the coupon rate 2. A bond with 10 percent annual coupon rate origina e current uld sell at market interest rate on this bond is 9%. Assuming no change in risk, this bond wo a in order to compensate a) premium; the purchaser for the above market coupon rate b) discount; the purchaser for the above market coupon rate c) premium; the seller for the above market coupon rate d) discount; the seller for the above market coupon rate 3. Suppose you are trying to price a bond. Which of the following is false? a) All else the same, bonds with larger coupon payments will have a higher price today b) Bonds with high coupon payments are generally (all else the same) more sensitive to changes in market interest rates than bonds with lower coupon payments. payments are today market interest rates than bonds with shorter maturities. the required return (i.e., yield to maturity), the more valuable the coupon maturities are generally (all else the same) more sensitive to changes in d) Bonds with long of the following is a type of equity security that has a fixed dividend and a 4. Which one priority status over other equity securities? a) Senior bond b) Debenture c) Common stock d) Preferred stock

Explanation / Answer

1. Correct option: A, increase the market price.

if interest rates decreases after bonds are issued, the market value of bond would rise because investors cannot buy a new issue bond with a coupon as high as previous one's.

2.correct option: C.

Bonds that have a coupon rate higher than the market interest rate, are sold at premium so that seller/holder of bond get benefit of high coupon value.

3. correct option: B.

Bond with low coupon rates are sensitive to market Interest rate, because as the intinter rate increases, value of these bonds are more likely to fall.

4. Correct option: D.

Preferred stockholders have priority over other securities holders when it comes to dividends and dividends are issued at a fixed rate based on stock's par value.

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