14. Which of the following is not a major issuer of bonds? a. State and local go

Question

14. Which of the following is not a major issuer of bonds? a. State and local governments b. U.S. Treasury c. Social Security Administration d. Corporations 15. A bond is currently selling for $900 and the par value is $1,000. Assume that the market interest rate stays the same for the remainder of the life of the bond. a. As time to maturity decreases, you would expect the bond to rise in price. b. As time to maturity decreases, you would expect the bond to fall in price. c. As time to maturity decreases, you would expect the bond to remain the same price. 16. Which of the following actions would tend to lower the riskiness of a bond issue? a. Rating agencies change the issue's bond ratings from BBB to BB. b. The issuing company decides to make the bond issue callable. c. The issuing company establishes a sinking fund provision for the bond issue d. The bond issue is subordinated to previous existing debt. 8 Problems

Explanation / Answer

14.   Answer: c. Social Security Administration SSA only invests in Government bonds State & local governments issue various types of bonds including municipal bonds or munis US Treasury issues Treasury bonds, Treasury notes and Treasury bills (T-bills). , All the above debt issued by the U.S. government are bench-mark for risk-free rates ,world over as they are regarded as extremely safe. Corporations issue corporate bonds & occupy the major portion of the bond market. 15. b. As time to maturity decreases, you would expect the bond to fall in price as the no.of periodic,future interest paymets are become less & less. 16. Answer: c. the issuing company establishes a sinking fund provision for the bond issue Revenues are set aside periodically& systematically , being in readiness to repay at the agreed time.So, principal repayment as well as interest payments are taken care of by the issuing company, without any surprises. Others are not the answer because: a. Rating from BBB to BB is down-grading--carries more risk b. Risk-averse investors may not be willing to invest in these bonds as they may have to give away the bonds at the option of the issuing company & seek to invest at lower rates of interest & also lose steady income . d.This bond loses priority over to the other debts of the issuing company.

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