Reference no: EM132209189
Answer the following questions:
1. If a corporation's bonds are unexpectedly given a downgrade (e.g., Moody's lowers the rating on Brady Corp. Bonds to Baa from Aa), what do you expect will happen to the yield to maturity on Brady's bonds?
2. What is a call feature in a debt issuance? Is this beneficial to the corporation issuing the bond, the bond investor, or both? Explain.
3. Assuming everything else is the same, which bond would have a lower coupon rate at issuance: one with a sinking fund provision or one without a sinking fund provision? Why?
4. What is the difference between the coupon rate of a bond and the yield to maturity of a bond? Which rate is more important and why?
5. What is a preemptive right as it relates to common stock? Which investor would value preemptive rights more, Benjamin Solowitz who owns .0001% of the shares of XYZ Inc., or Carl Icahn who owns 50.1% of the shares of XYZ Inc.? Why?
6. Why do firms accept underpricing of their initial public offerings (IPOs)?
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