Financial Management - Study Mode

[#311] Bonds issued by small companies tend to have
Correct Answer

(A) high liquidity premium

Explanation

Solution: Bonds issued by small companies tend to have high liquidity premium. Liquidity premium is a premium demanded by investors when any given security cannot be easily converted into cash for its fair market value. When the liquidity premium is high, the asset is said to be illiquid, and investors demand additional compensation for the added risk of investing their assets over a more extended period since valuations can fluctuate with market effects.

[#312] An interest yield = 7.9% and capital gains yield = 2.5% then total rate of return is
Correct Answer

(A) 10.00%

[#313] Stated value of bonds or face value is considered as
Correct Answer

(B) par value

Explanation

Solution: Stated value of bonds or face value is considered as par value. Par value is the face value of a bond, or for a share, the stock value stated in the corporate charter.

[#314] Type of bond in which payments are made on basis of inflation index is classified as
Correct Answer

(B) purchasing power bond

Explanation

Solution: Type of bond in which payments are made on basis of inflation index is classified as purchasing power bond. Purchasing power is the value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing power is important because, all else being equal, inflation decreases the amount of goods or services you would be able to purchase.

[#315] Coupon rate of bond is also called
Correct Answer

(D) both a and c

Explanation

Solution: Coupon rate of bond is also called nominal rate and quoted rate. Coupon interest rates are determined as a percentage of the bond's par value, also known as the "face value." ufeff