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Unformatted text preview: , less
c.) fa ll , more
d) fall , less
b) For the following two questi ons, consider a setting where a corporation iss ues a $ 1000 par, I0%
coupon bond at time t. but by t+2 recogni zes a temporary cash fl ow crisis is imminent. It
announces that it will likel y not be abl e to make its coupon payment for the third period but, if so,
will pay a double coupon in the fourth.
.1 20. For a CUITent holder of thi s bond. the fi rm 's announcement will _ _ __
maturity on the bond .
c .) d) the yield to raise
change ambi guously and
2 1. After the aggregate market reacts to the above new . the pri ce of thi s bond wil l
/ any current holder who sells thi s bond will have a
probability of a ca pital loss.
a.) ri se, higher
d.) ri se. lower
fall . hi oher
fa ll , lower 22 . In the case of a fi xed-coupon perperuitr , a one perce nt fall in this bond 's yield impli es a
______ in its price of _ __ __
rise, exactl y 1%
ri se. greater than I%
fa ll , less than 1%
d.) fall , exactl y 1% a.) b...
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- Winter '09