Describe corporate bonds. What affects the interest rate paid by a corporation?
What will be an ideal response?
A corporate bond is a corporation's written pledge that it will repay a specified amount of money with interest. The interest rate is affected by the financial health of the company issuing the bonds. Specific factors that affect the interest rate are the corporation's ability to pay interest each year until maturity and the ability to repay the bond at maturity. For bond investors, the interest rate on corporate bonds is an example of the risk-return ratio discussed earlier in this chapter. Simply put, investors expect more interest if there is more risk with more speculative bond issues. The maturity date is the date on which the corporation will repay the borrowed money. For most corporate bonds, maturity dates range from 10 to 30 years.
You might also like to view...
Delivery expense is a selling expense on the income statement
Indicate whether the statement is true or false
A taxpayer can deduct interest on two residences
Indicate whether the statement is true or false
Consider the continuous random variable x, which has a uniform distribution over the interval from 20 to 28 . The probability that x will take on a value of at least 26 is _____
a. 0 b. .125 c. .250 d. 1
Given the following data for Handle Division: Selling price to outside customers$150 Variable cost per unit 80 Fixed cost per unit (based on capacity) 30 Capacity (in units) 50,000 The Cabinet Division would like to purchase 10,000 units from the Handle Division at a price of $125 per unit. Handle Division has no excess capacity to handle the Cabinet Division's requirements. The Cabinet Division currently purchases from an outside supplier at a price of $140. If the Handle Division accepts a $125 price internally, the company, as a whole, will be better or worse off by:
A. $115,000 B. $(100,000) C. $600,000 D. $250,000