Financial Management - Study Mode

[#1031] Coupon rate of convertible bond is
Correct Answer

(B) lower

Explanation

Solution: Coupon rate of convertible bond is lower. Investors will generally accept a lower coupon rate on a convertible bond, compared with the coupon rate on an otherwise identical regular bond, because of its conversion feature.

[#1032] Rate denoted as r* is best classified as
Correct Answer

(A) real risk-free interest rate

Explanation

Solution: Rate denoted as r* is best classified as real risk-free interest rate. The Risk-Free Rate of return is the interest rate an investor can expect to earn on an investment that carries zero risk.

[#1033] An outstanding bonds are also classified as
Correct Answer

(D) seasoned bonds

Explanation

Solution: An outstanding bonds are also classified as seasoned bonds. A seasoned issue is an issue of additional securities from an established company whose securities already trade in the secondary market. A seasoned issue is also known as a "seasoned equity offering" or "follow-on offering."

[#1034] An inflation rate includes in bond's interest rates is one which is inflation rate
Correct Answer

(B) expected in future

Explanation

Solution: An inflation rate includes in bond's interest rates is one which is inflation rate expected in future. Inflation is measured in a variety of ways depending upon the types of goods and services considered and is the opposite of deflation which indicates a general decline occurring in prices for goods and services when the inflation rate falls below 0 percent.

[#1035] A premium charged by lenders for securities that cannot be converted into cash is classified as
Correct Answer

(D) Both B and C

Explanation

Solution: A premium charged by lenders for securities that cannot be converted into cash is classified as liquidity premium and marketability premium.