One often finds that a company’s bonds have a higher yield than its preferred stock, eventhough an investor considers the bonds to be less risky than the preferred. What causes thisyield differential?

Corporate bonds are riskier than US Treasury, so they pay default risk premium over what Treasury pays to stay competitive in the market.  True  False

Why is it important that underwriting the investment banker does not overvalue (over price) or undervalued (under price) the securities? If the securities are overpriced or underpriced, who suffers the lost? Discuss with illustrations.

Capital market securities are usually more widely traded than shorter-term securities and tend to be more liquid.Select one:TrueFalse

Why is yield to maturity more important than coupon rate when it comes to bonds?

Which one of the following expressions about risk and returns is wrong? A. In general, one reason why a stock is riskier than a bond is that because cash flows from a bond are known and promised, whereas cash flows from a stock are neither known nor promised. B. According to CAPM model, a well-diversified portfolio will have a beta which equals to 0. C. Risk premium is the extra return provided on risky assets to compensate for risk. The difference between risky return and the risk-free return. D. Unexpected return happened because new information came to light which caused our expectations about prices and returns to change.

The yield to maturity of a company’s bonds can be higher than its cost of preferred stock   TRUE FALSE

Which of the following events would make it less likely that a company would choose to call its outstanding callable bonds? O The company's financial situation improves significantly. O Ratings on the company's bonds are upgraded. O Inflation decreases significantly. Market interest rates decline sharply. O Market interest rates rise sharply.