1. In the event that a corporation files for bankruptcy, bond trustees have the
ID: 2764245 • Letter: 1
Question
1. In the event that a corporation files for bankruptcy, bond trustees have the power to
a. change the interest rate on outstanding bonds.
b. sell the corporations secured assets and use the proceeds to pay the bondholders.
c. recall outstanding bonds.
d. issue new bonds
2. Alice recently bought dozens of collectable Barbie dolls. What ultimately will determine the investment value of Alice's Barbies when she goes to resell them?
a. Its return
b. Its cost
c. Book value
d. Supply and demand
e. None of these
3. What are the disadvantages associated with investing directly in real estate?
a. Increasing property taxes and insurance costs
b. Large investment of time and energy required
c. Illiquidity
d. All of these are correct
e. Only Increasing property taxes and insurance costs and Illiquidity are correct.
4. Because junk bonds carry a much higher risk of default, they also carry an interest rate ________ percent above the AAA grade long-term bonds.
a. 10-12
b. 7-9
c. 1-2
d. 3-6
e. 20-25
Explanation / Answer
1) b)In the event that a corporation files for bankruptcy, bond trustees have the power to sell the corporations secured assets and use the proceeds to pay the bondholders.
Once the corporation files for bankruptcy, the trustee shall have the power to liquidate and sell all the corporations secured assets and ensure that the proceeds are paid to the bondholders.
2)d. Supply and demand
The price of the doll when she goes to resell them is determined by the supply and demand of the dolls,the higher the demand the higher the price and therefore higher the investment value provided the supply remains the same and higher the supply the lower the price and therefore lower the investment value provided the demand remains the same.Therefore the investment value of Alice's Barbies when she goes to resell them is determined by Supply and demand of the dolls.
3)d. All of these are correct
Real estate can't be bought and easily sold therefore they are illiquid.It requires time and energy to maintain and manage.Increasing property taxes and insurance costs can also add up quickly are also other considerations.
4)d. 3-6
The junk bonds are also called the high yield bonds ,the average yield on the high yield bonds falling in ratings BB and below has been between 5% to 8% while the yield on similar AAA grade long-term bonds is around 2% ,therefore the junk bonds carry an interest rate 3-6% percent above the AAA grade long-term bonds.
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