1) Explain what debt investments are investment grade. What rate of return would you expect on...

1) Explain what debt investments are investment grade. What rate of return would you expect on investment grade debt versus other non-investment grade debt (and why)?

2) Explain the difference between constant dividend growth and supernatural dividend growth.

Expert Solution

1. For the debt investment to be investment grade it means that the financial position of the organization issuing the debt instruments is sound and the organization would be able to furnish the coupon or the interest payment on the instrument as well as repay the debt when it becomes due.

The rate is return on the investment grade debt would be less than the non investment grade because of a lower risk level with the investment grade debt. The non investment grade debt has a higher chance of becoming default with time.

2. A constant dividend growth is done by a company whose management is sure of growing future profitable income stream. This policy is sustainable in nature.

A supernatural dividend growth is an abrupt and sudden growth in the dividend and is non sustainable in nature. It signals either a closing down of a business unit dividend or a speculative dividend given to window dress the financial position of the firm

jeff jeffy answered 1 week ago

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