Financial Management - Study Mode
[#226] Falling interest rate leads change to bondholder income which is
Correct Answer
(A) reduction in income
Explanation
Solution: Falling interest rate leads change to bondholder income which is reduction in income. An income bond is a type of debt security in which only the face value of the bond is promised to be paid to the investor, with any coupon payments paid only if the issuing company has enough earnings to pay for the coupon payment.
[#227] Bonds issued by corporations and exposed to default risk are classified as
Correct Answer
(A) corporation bonds
Explanation
Solution: Bonds issued by corporations and exposed to default risk are classified as corporation bonds. A corporate bond is a debt security issued by a corporation and sold to investors. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations. In some cases, the company's physical assets may be used as collateral for bonds.
[#228] Treasury bonds are exposed to additional risks that are included
Correct Answer
(D) Both A and B
Explanation
Solution: Treasury bonds are exposed to additional risks that are included reinvestment risk and interest rate risk.
[#229] If bond's call provision is practiced in first year of issuance then an additional payment is classified as
Correct Answer
(C) call provision
Explanation
Solution: If bond's call provision is practiced in first year of issuance then an additional payment is classified as call provision. A call provision is a provision on a bond or other fixed-income instrument that allows the issuer to repurchase and retire its bonds.
[#230] Depreciation is incorporated in cash flows because it:
Correct Answer
(C) reduces tax liability