Financial Management - Study Mode
[#606] Reinvestment risk of bonds is higher on
Correct Answer
(A) short maturity bonds
Explanation
Solution: Reinvestment risk of bonds is higher on short maturity bonds. Short-term bond funds are mutual funds that invest in bonds with a maturity period less than 5 years.
[#607] Bonds that have high liquidity premium are usually have
Correct Answer
(C) less frequently traded
Explanation
Solution: Bonds that have high liquidity premium are usually have less frequently traded. A bond is a fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments.
[#608] Bond which is offered below its face value is classified as
Correct Answer
(B) original issue discount bond
Explanation
Solution: Bond which is offered below its face value is classified as original issue discount bond. Bonds that trade at a value of less than face value would be considered a discount bond.
[#609] Risk of fall in income due to fall in interest rates in future is classified as
Correct Answer
(C) reinvestment risk
Explanation
Solution: Risk of fall in income due to fall in interest rates in future is classified as reinvestment risk. Reinvestment risk is the probability that an investor will be unable to reinvest cash flows (e.g., coupon payments) at a rate comparable to the current investment's rate of return.
[#610] Redemption option which protects investors against rise in interest rate is considered as
Correct Answer
(B) redeemable at par
Explanation
Solution: Redemption option which protects investors against rise in interest rate is considered as redeemable at par. Redemption Option means the option that each holder of Parent Common Stock has to require the Parent to redeem or convert his, her or its ownership of Parent Common Stock prior to the Closing in accordance with the governing documents of Parent.