25) Which of the following statements is false? 25) ______ A) A higher yield to

Question

25)

Which of the following statements is false?

25)

______

A)

A higher yield to maturity does not necessarily imply that a bond's expected return is higher.

B)

Because the yield to maturity for a bond is calculated using the promised cash flows, the yield of bond’s with credit risk will be lower than that of otherwise identical default-free bonds.

C)

Because the cash flows promised by the bond are the most that bondholders can hope to receive, the cash flows that a purchaser of a bond with credit risk expects to receive may be less than that amount.

D)

By consulting bond ratings, investors can assess the credit-worthiness of a particular bond issue.



26)

Which of the following statements is false?

26)

______

A)

Credit spreads fluctuate as perceptions regarding the probability of default change.

B)

Credit spreads are high for bonds with high ratings.

C)

Investors pay less for bonds with credit risk than they would for an otherwise identical default-free bond.

D)

We refer to the difference between the yields of the corporate bonds and the Treasury

Explanation / Answer

25)

Which of the following statements is false?

A)

FALSE: A higher yield to maturity does not necessarily imply that a bond's expected return is higher.

B)

Because the yield to maturity for a bond is calculated using the promised cash flows, the yield of bond’s with credit risk will be lower than that of otherwise identical default-free bonds.

C)

Because the cash flows promised by the bond are the most that bondholders can hope to receive, the cash flows that a purchaser of a bond with credit risk expects to receive may be less than that amount.

D)

By consulting bond ratings, investors can assess the credit-worthiness of a particular bond issue.



26)

Which of the following statements is false?

26)

______

A)

Credit spreads fluctuate as perceptions regarding the probability of default change.

B)

FALSE: Credit spreads are high for bonds with high ratings.

C)

Investors pay less for bonds with credit risk than they would for an otherwise identical default-free bond.

D)

We refer to the difference between the yields of the corporate bonds and the Treasury

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