Financial Management - Study Mode
[#441] Bond that has been issued in very recent timing is classified as
Correct Answer
(C) new issue
Explanation
Solution: Bond that has been issued in very recent timing is classified as new issue. A new issue is a reference to a security that has been registered, issued, and is being sold on a market to the public for the first time. The term does not necessarily refer to newly issued stocks, although initial public offerings (IPOs) are the most commonly known new issues.
[#442] Type of options that permit bond holder to buy stocks at stated price are classified as
Correct Answer
(C) warrants
Explanation
Solution: Type of options that permit bond holder to buy stocks at stated price are classified as warrants. Warrants are a derivative that give the right, but not the obligation, to buy or sell a security most commonly an equity at a certain price before expiration. The price at which the underlying security can be bought or sold is referred to as the exercise price or strike price.
[#443] When price of bond is calculated below its par value, it is classified as
Correct Answer
(B) discount bond
Explanation
Solution: When price of bond is calculated below its par value, it is classified as discount bond. A discount bond is a bond that is issued for less than its par or face value. Discount bonds may also be a bond currently trading for less than its face value in the secondary market. A bond is considered a deep-discount bond if it is sold at a significantly lower price than par value, usually at 20% or more.
[#444] Required rate of return in calculating bond's cash flow is also classified as
Correct Answer
(D) Both A and B
Explanation
Solution: Required rate of return in calculating bond's cash flow is also classified as going rate of return and yield.
[#445] An interest rate which is used in calculation of cash flows of bonds is called
Correct Answer
(C) required rate of return
Explanation
Solution: An interest rate which is used in calculation of cash flows of bonds is called required rate of return. The required rate of return is the minimum return an investor expects to achieve by investing in a project. An investor typically sets the required rate of return by adding a risk premium to the interest percentage that could be gained by investing excess funds in a risk-free investment.