Study Questions for Chapter 14 - Part 1

Study Questions for Chapter 14 - Part 1 - happening here.)...

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Study Questions for Chapter 14 – Part 1 1. Why do individuals and businesses borrow money on a long term basis? What type of agreement does the borrower enter into with the lender? What are the risks and rewards for each party? 2. What are the options for a corporation to raise capital to do a new project? Can common stockholders, the basic owners of the corporation, benefit from financing with long term debt? Explain the circumstances under which they benefit, and the circumstances under which they do not benefit from using debt to finance a new project. Can you explain why this happens? (Hint, Study Exhibits 1 and 2 and Example Exercise 14-1 and explain in your own words what is
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Unformatted text preview: happening here.) 3. What is a bond, and what happens when a corporation issues a bond? Who are the parties involved? What does the corporation promise to do when they issue a bond? 4. Define the following terms: Bond indenture Contract/coupon/ or stated rate Market rate Bond discount Bond premium 5. Explain the relationship between the contract rate, the market rate, and bond discounts and premiums. (Hint, you will not be able to do this one well from what is presented on page 621 only, you will need to work through pages 622 to 626 to understand these relationships)....
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This note was uploaded on 02/11/2012 for the course BUSINESS 130 taught by Professor Mccormack during the Fall '10 term at Berea.

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