Effects on Bond's Yield to Maturity
Not what you're looking for?
Indicate whether each of the following actions will increase or decrease a bond's yield to maturity:
a. The bond's price increases.
b. The bond is downgraded by the rating agencies.
c. A change in the bankruptcy code makes it more difficult for bondholders to receive payments in the event the firm declares bankruptcy.
d. The economy seems to be shifting from a boom to a recession. Discuss the effects of the firm's credit strength.
e. Investors learn that the bonds are subordinated to another debt issue.
Purchase this Solution
Solution Summary
This solution discusses the effect of various actions on a bond's yield to maturity, and why each action has the stated effect.
Solution Preview
a. The bond's price increases: Because the bond coupon is fixed when the bond is issued, if the bond's price increases investors are paying more to get the same return. (This will generally happen because (a) general interest rates have declined, (b) inflation is expected to be lower in the future, (c) the company's credit strength has increased, (d) the bond is more liquid, and/or (e) the time to maturity has decreased.) Thus, the ...
Purchase this Solution
Free BrainMass Quizzes
Operations Management
This quiz tests a student's knowledge about Operations Management
Business Ethics Awareness Strategy
This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.
Situational Leadership
This quiz will help you better understand Situational Leadership and its theories.
Team Development Strategies
This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.
Lean your Process
This quiz will help you understand the basic concepts of Lean.