Gateway Parts - Which is it?

Which is it?

# An individual who own shares of a firm (i.e., an equity investor), actually owns a part of the firm. a. True b. False # The coupon rate of a bond is the same as the interest rate of a bond. As interest rates change in the economy, the coupon rate also changes and this in turn will change the face value of the bond. a. True b. False # Whereas debt securities are uniform across all corporations, there are various types of equity securities and U.S. corporations are very creative about designing new and unique equity securities. a. True b. False # The government of Mont-Ecar-Low issued a $1,000 par value bond with a coupon rate of $150 per year, but this bond would not mature for 1,000,000,000,000 years. If investor's required rate of return on this bond is 15 percent, can you calculate the expected market price of this bond and if yes, what is the expected market price? a. Yes, an expected market price can be calculated, but the only way is to use a large computer that can add up the present value of 1,000,000,000,000 coupon payments of $150 each and the present value of the par value of the bond. b. No, because all of today's investors will be dead before the bond matures. c. Yes, the current value of the bond is within rounding error of zero because using 15% to discount for 1,000,000,000,000 years reduces almost any dollar amount to zero. d. No, because a calculator will not accept 1,000,000,000,000 for the number of compounding periods and 1,000,000,000,000 years is not on any chart of discounting factors. e. Yes, because the coupon rate of 15% is equal to the discount rate of 15%, the bond will trade at par value of $1,000.

Public Comments

1. is TRUE. an equity investor is part owner of a company. Think of a shareholder in General Electric he or she is a part owner of the corporation through his or her share ownership. 2. False- See explaination to previous response. 3. False- there are many types of bonds floating rate bonds, debentures ( i.e., unsecured bonds) junk bonds ect. 4. Number 4 is E See previous discussion on bond issue.