Question

1. Initial public offerings (IPO) most likely occur in the:

A. Secondary market.

B. Initial market.

C. Primary market.

D. Opportunity market.

2. The yield to maturity on a bond is:

	A	Lower than the coupon rate when the bond sells at a discount, and equal to the coupon rate when the bond sells at a premium.
	B	The discount rate that will establish the present value of the payments equal to the current bond price.
	C	Based on the assumption that payments received are reinvested at the coupon rate of return.
	D	Always equal to the coupon rate when the bond sells at a discount.

3. Disadvantages of issuing bonds most likely includes:

A		Interest paid by the issuing corporation on bonds is a deductible expense for the corporation for federal income tax purposes.
B		Bonds (debt) can increase the return on equity through favorable leverage.
C		Bonds typically require payment of both periodic interest and maturity value.
D		Bonds impact shareholder control.

Answer 1

1)

Primary market is where firms issue shares for the first time.

So IPO's most likely occur in primary markets

Option c is correct answer.

2)

When,

YTM = coupon rate then bonds will trade at par value

YTM > coupon rate bonds will trade at discount

YTM < coupon rate bonds will trade at premium

Also value of the bond is present value of future cash flows discounted at YTM.

Option B is correct.

3)

Bonds have some disadvantages

It includes periodic payments of interest and repayment of bonds at maturity.

Option c is correct