Question

True or false: and why

1- The current condition of extreme government indebtedness is not an acute concern to many because of government's ability to print their own money.

2- The primary purpose of a default premium is to measure of an issuer's future financial prospects.

3- In the event of bankruptcy liquidation, debt holders are repaid, then common share holders and then preferred shareholders.

4- Bonds are considered fixed income instruments because their terminal value and yield to maturity are known and will not change.

Answer 1

1. False: Even though the government can print money, printing money can increase inflation. Indebtedness will increase the problems like fiscal crisis and lowering national income

2. False: The primary purpose is to compensate a lender for assuming default risk.

3. False: In the In the event of bankruptcy liquidation, debt holders are repaid, then preferred shareholders and then common share holders.

4.  True: Bonds are considered fixed income instruments because their terminal value and yield to maturity are known and will not change.