In order to achieve a positive leverage adjusted duration gap (DA-kDL>0) , a financial institution with zero leverage adjusted duration gap  can reduce the duration of liability portfolio by Selling long term bonds in the asset portfolio, replace them with short term bonds Issuing long term bonds, use the funds to buy short term assets Selling short term bonds in the asset portfolio, replace them with long term bonds Issuing short term bonds, use the funds to buyback its long  term bonds

Under which of the following situation, would a firm most likely to  call its outstanding callable bonds? Group of answer choices a)The firm has financial distress. b)The company’s bonds are downgraded. c)The market interest rate increases d)The market interest rate declines

The key benefits associated with refunding debt are the reduction in the firm's debt ratio and the creation of more reserve borrowing capacity. true or false explain

Under the Pure Expectations Theory, if issuers expect interest rates to increase, O Two statements are correct. O borrowers will generally prefer to issue short-term securities rather than long-term securities. O the corresponding decrease in the demand for long-term funds by borrowers places downward pressure on long-term funds. O Three statements are correct. O there is downward pressure on the yield of short-term funds. O Only one statement is correct. O they will prefer to lock in the present interest rate over a long period of time.

Price risk is the risk that Select one: a. the bond principal will not be paid in full or on time. b. market prices increase due to market interest rate changes making bonds more expensive to purchase. c. the bonds in a dedicated portfolio will decrease in value in response to an increase in interest rates. d. the yield-to-maturity will be less than the inflation risk causing the real rate of return to be negative. e. coupon payments will be reinvested at a rate that is less than the bond's yield-to-maturity

Leverage is gained when which of the following exists? O Return on assets is greater than the interest on borrowed funds O Interest coverage ration is greater than 1 O Interest coverage ratio is less than 1% O Interest on borrowed funds is greater than the return on assets

Bonds that have investment-grade ratings from sources such as S&P tend to have higher interest (coupon) rates due to higher default risk. True False

Select all that are true with respect to historical data on risk and return in the U.S. financial markets since about 1926, Group of answer choices A portfolio of small stocks has earned higher returns than large stocks, with less risk A portfolio of small stocks has earned higher returns that large stocks, with higher risk Stocks have outperformed government bonds, albeit with higher risk With respect to a diversified stock portfolio, the longer the holding period, the higher the risk. With respect to a diversified stock portfolio, the longer the holding period, the lower the risk.

The time value of money is used in calculating bond prices because: Group of answer choices A - The company might choose to repay the bonds prior to their maturity date B - Bond investors receive future payments and purchase bonds with current dollars C - The amount to be repaid at maturity will change as market rates change D - Cash interest payments to bondholders will change as market rates change

Which statement is most correct? *     A. Since debt financing raises the firm’s financial risk, increasing debt ratio will increase WACC.   B. Since debt financing is cheaper than equity financing, increasing debt ratio will reduce WACC.   C. Increasing a firm’s debt ratio will typically reduce the marginal costs of both debt and equity financing; however, it still may raise the firm’s WACC.   D. Statements a and c are correct.   E. None of the above