Fundamentals of Corporate Finance Standard Edition
10th Edition
ISBN: 9780078034633
Author: Stephen Ross, Randolph Westerfield, Bradford D. Jordan
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Question
Chapter 7.4, Problem 7.4ACQ
Summary Introduction
To discuss: The reason why corporations are more attracted to income bonds and the unpopularity of income bonds
Introduction:
Income bonds are debt instruments issued by a corporation. They have a peculiar feature, unlike conventional bonds. The coupon payments on income bonds depend on the income earned by the company. The company will pay coupons on the income bond only if it has sufficient income.
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Chapter 7 Solutions
Fundamentals of Corporate Finance Standard Edition
Ch. 7.1 - What are the cash flows associated with a bond?Ch. 7.1 - What is the general expression for the value of a...Ch. 7.1 - Is it true that the only risk associated with...Ch. 7.2 - Prob. 7.2ACQCh. 7.2 - Prob. 7.2BCQCh. 7.2 - Prob. 7.2CCQCh. 7.3 - What does a bond rating say about the risk of...Ch. 7.3 - What is a junk bond?Ch. 7.4 - Prob. 7.4ACQCh. 7.4 - What do you think would be the effect of a put...
Ch. 7.5 - Why do we say bond markets may have little or no...Ch. 7.5 - Prob. 7.5BCQCh. 7.5 - What is the difference between a bonds clean price...Ch. 7.6 - What is the difference between a nominal and a...Ch. 7.6 - What is the Fisher effect?Ch. 7.7 - What is the term structure of interest rates? What...Ch. 7.7 - What is the Treasury yield curve?Ch. 7.7 - What six components make up a bonds yield?Ch. 7 - Prob. 7.1CTFCh. 7 - Prob. 7.2CTFCh. 7 - The 10-year bonds issued by KP Enterprises were...Ch. 7 - Prob. 7.4CTFCh. 7 - Prob. 7.5CTFCh. 7 - Prob. 7.6CTFCh. 7 - The term structure of interest rates is based on...Ch. 7 - Treasury Bonds [LO1] Is it true that a U.S....Ch. 7 - Interest Rate Risk [LO2] Which has greater...Ch. 7 - Treasury Pricing [LO1] With regard to bid and ask...Ch. 7 - Prob. 4CRCTCh. 7 - Call Provisions [LO1] A company is contemplating a...Ch. 7 - Coupon Rate [LO1] How does a bond issuer decide on...Ch. 7 - Prob. 7CRCTCh. 7 - Prob. 8CRCTCh. 7 - Prob. 9CRCTCh. 7 - Term Structure [LO5] What is the difference...Ch. 7 - Crossover Bonds [LO3] Looking back at the...Ch. 7 - Municipal Bonds [LO1] Why is it that municipal...Ch. 7 - Bond Market [LO1] What are the implications for...Ch. 7 - Prob. 14CRCTCh. 7 - Bonds as Equity [LO1] The 100-year bonds we...Ch. 7 - Prob. 1QPCh. 7 - Interpreting Bond Yields [LO2] Suppose you buy a 7...Ch. 7 - Prob. 3QPCh. 7 - Prob. 4QPCh. 7 - Prob. 5QPCh. 7 - Prob. 6QPCh. 7 - Prob. 7QPCh. 7 - Prob. 8QPCh. 7 - Prob. 9QPCh. 7 - Prob. 10QPCh. 7 - Prob. 11QPCh. 7 - Prob. 12QPCh. 7 - Prob. 13QPCh. 7 - 14. Using Treasury Quotes [LO2] Locate the...Ch. 7 - Prob. 15QPCh. 7 - Prob. 16QPCh. 7 - Prob. 17QPCh. 7 - Prob. 18QPCh. 7 - Prob. 19QPCh. 7 - Prob. 20QPCh. 7 - Prob. 21QPCh. 7 - Prob. 22QPCh. 7 - Prob. 23QPCh. 7 - Prob. 24QPCh. 7 - Prob. 25QPCh. 7 - Prob. 26QPCh. 7 - Prob. 27QPCh. 7 - Prob. 28QPCh. 7 - Prob. 29QPCh. 7 - Prob. 30QPCh. 7 - Prob. 31QPCh. 7 - 32. Valuing the Call Feature [LO2] Consider the...Ch. 7 - Prob. 33QPCh. 7 - Prob. 34QPCh. 7 - Prob. 35QPCh. 7 - Financing SS Airs Expansion Plans with a Bond...Ch. 7 - Financing SS Airs Expansion Plans with a Bond...Ch. 7 - Financing SS Airs Expansion Plans with a Bond...Ch. 7 - Financing SS Airs Expansion Plans with a Bond...Ch. 7 - Financing SS Airs Expansion Plans with a Bond...Ch. 7 - Financing SS Airs Expansion Plans with a Bond...Ch. 7 - Prob. 7MCh. 7 - Prob. 8MCh. 7 - Financing SS Airs Expansion Plans with a Bond...Ch. 7 - Prob. 10M
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- (1) What factors might lead a company to gainadditional funds through debt financing rather thanthrough equity financing? (2) Why does consumerdebt have a more negative connotation than businessdebt?arrow_forwardProvide an explanation of whether it is advantageous for a bank to classify debt investments as “held to maturity “or “available for sale” if the required return by the market declines? What impact will this have on the bank's balance sheet and net income?arrow_forwardIdentify the following as either an advantage (A) or a disadvantage (D) of bond financing for a company. A company earns a lower return with borrowed funds than it pays in interest.arrow_forward
- To what extent does the company’s bond issuance policies support or hinder their strategies? For example, if the company is attempting to fund operating expenses, refinance old debt, or change its capital structure, are they issuing sufficient bonds to achieve these goals? Be sure to substantiate claims.arrow_forwardWhy are the bonds treated as a conservative investment? Do you think the treasury bills are risk-free assets?arrow_forwardWhat types of advantages or expertise should an investment bank have to be competitive in the corporate bond market? What different types of advantages or expertise should it have to be competitive in the Treasury bond market? Why?arrow_forward
- There are advantages and disadvantages of debt financing in contrast to equity financing. Which of the following is less likely to represent an advantage of debt financing? a. The cost of debt should be lower than the cost of equity for most companies due to the lower risk to the lender and the tax deductibility of interest b. The repayment of debt capital may affect the liquidity of the company c. If the return on assets exceeds the cost of debt, then this will result in a higher return on shareholders’ funds as compared to the return on assets d. The increase in borrowings will not normally affect the voting control of the current shareholders as compared to the issue of shares e. Fixed interest rate loans will result in the variability in the market value of such loans over time which will normally be less than the variability in the value of the equity of the companyarrow_forwardWhat is informal debt restructuring?arrow_forwardDebt allows an economy to appear very large but debt also creates more ____ in an economy. Inevitability Surety Certainty Risk Businessarrow_forward
- Why should an investor use debt?arrow_forward1. When the firm gets acquired by a better fundamental company, does that increase, decrease, or have no effect on the credit spread for a corporate bond?arrow_forwardWhat is the purpose of financial leverage in finance? a) To increase the company's liquidity b) To reduce the company's risk c) To increase the company's profitability d) To magnify the company's returns and risksarrow_forward
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