Historically, big-firm stocks are riskier than bonds, True/False? Explain briefly.

Solutions

Expert Solution

Answer:-

The statement is True with reference to investors perspective.

The big firm stocks are relatively riskier as they are not obliged to pay any fixed amount of interest payments to the investors unlike bonds though in some cases the company may pay a dividend which is at the discretion of management.

The value invested by the company generated from the profits shows the investors confidence in the company's future.

The bonds have certain covenants which will restrict the company to spend money in non profitable ventures and limit the debt that can be raised by the company.

The bonds pay regular dividends which increases the investors return. The volatility of stocks are very high where as the bond have low volatility and in case of stocks any adverse news with respect to the company or industry can effect the stock price to greater extend even leading to complete bankruptcy in case of closure of company. The bonds on the other hand can recover some amount from the companies assets which have more priority than the equity holders.

jeff jeffy answered 2 hours ago

Next > < Previous

Related Solutions

If stocks get riskier, explain what happens to the market for Treasury bonds? Be sure to...

If stocks get riskier, explain what happens to the market for Treasury bonds? Be sure to explain what is happening with equilibrium price, interest rate and equilibrium quantity in the Treasury bond market

1. Why do people invest in stocks? Is stock a riskier investment than bonds? Why or...

1. Why do people invest in stocks? Is stock a riskier investment than bonds? Why or why not? How is preferred stock similar to bonds? To common stock? 2. Why would economic growth affect the value of a stock? 3. What are the limitations of the generalized dividend model? 4.What are the risks faced by investors investing in stocks in emerging markets? 5.What is the motivation for buying foreign stocks?

Which of this sentences are true or false? Please explain briefly. 1) “Callable bonds are more...

Which of this sentences are true or false? Please explain briefly. 1) “Callable bonds are more likely to be called if interest rates have increased since the issuance of the bonds.” 2) “When trading bonds with coupons, the bond seller must pay a portion of the next coupon, representing accrued interest, to the bond buyer.”

1) Historically, Stocks have returned more than bonds and cash. What is the likely reason for...

1) Historically, Stocks have returned more than bonds and cash. What is the likely reason for the return differences between cash, fixed income, and equities?

True/False? If False, Why? 1_General obligation bonds are less restrictive than revenue backed bonds with few...

True/False? If False, Why? 1_General obligation bonds are less restrictive than revenue backed bonds with few limitations regarding the amount that can be issued. 2_When issuing revenue backed bonds, receipts from all issuing governments sources are pledged to pay the interest and principal back to the bond purchasers. 3_The theory of tax expenditures is what drives the rationale for investors to purchase State/local bonds of either type (general obligation/revenue backed) 4_The Federal American Recovery Act, signed into law by President...

1. (30) True or False (explain your answer briefly. A simple "true" or "false" without explanation...

1. (30) True or False (explain your answer briefly. A simple "true" or "false" without explanation will get zero point) a) (6 points) An upper stream manufacturing rm merges with another downstream distri- bution firm so as to engage in price discrimination. Such a vertical merger will decrease all consumer'swelfare. b) (6 points) Two firms merge together, only if the transaction cost must be reduced. c) (6 points) Specic human capital is a barrier of vertical integration. d) (6 points)....

Consider the argument from the CAPM: “Stocks with beta larger than one are riskier, those with...

Consider the argument from the CAPM: “Stocks with beta larger than one are riskier, those with beta smaller than one are less risky.” Comment on the intuition of why this is the case. Show mechanically (mathematically) why this is the case.

Historically which has been true? Multiple Choice The returns on small-company stocks were less volatile than...

Historically which has been true? Multiple Choice The returns on small-company stocks were less volatile than the returns on large-company stocks. The risk-free rate of return remained constant over the time period. U.S. Treasury bills had a positive average real rate of return. Bonds had an average rate of return that exceeded the average return on stocks. The inflation rate was just as volatile as the return on long-term bonds.

Are the following statements true or false? Explain briefly. a) The supply of apartments is more...

Are the following statements true or false? Explain briefly. a) The supply of apartments is more inelastic in the short run than the long run. b) It makes no sense to compare elasticities for different goods, because that is like comparing apples and oranges. c) The cross-price elasticity will always be positive for complements. d) The demand for refrigerators is more inelastic in the short run than the long run. e) If a 10 percent increase in the price of...

True or false (explain). If a firm is maximizing profits, then the value of the marginal...

True or false (explain). If a firm is maximizing profits, then the value of the marginal product of each factor that it is free to vary must equal its factor price. 2. True or false (explain). If a competitive firm exhibits constant returns to scale, then its long run maximum profit must be constant. 3. True or false (explain). The assumptions of a diminishing marginal product and diminishing technical rate of substitution are the same. 4. True or false (explain)....

Subjects