a) Define and explain the following terms:
Secured versus unsecured debt
Senior versus subordinated debt
b) Compare 30-year bond to a 5-year
bond all else equal. Which one is more sensitive to interest rate
changes. Why? Please explain.
1. Define and explain the following terms(in own words):
Secured versus unsecured debt:
Senior versus subordinated debt:
2. Compare 30-year bond to a 5-year bond all else equal. Which
one is more sensitive to interest rate changes. Why? Please
explain.
All else equal, the more people save, the higher the demand for
debt capital will be, resulting in higher interest rates.
Group of answer choices
True
False
All else equal, firms with higher leverage (D/E ratio) tend to
have higher betas. However, when firms are heavily levered (near
the “zone of insolvency” or bankruptcy), their betas tend to drop
significantly. Without mentioning anything about the equation for
beta, briefly explain why this phenomenon might occur.
Assuming all else is equal, which of the following loans is most
likely to have the lowest total interest cost?
Secured non-amortizing loan
Secured amortizing loan
Unsecured amortizing loan
Unsecured non-amortizing loan
Discuss briefly and comment for accuracy the following
statements.
“All else equal, higher depreciation expenses will result in
larger FCF and lower net income. The specific impact can be
discerned by multiplying the incremental depreciation expense by
tax rate.”
Assuming all else equal, discuss the effect of the recognition
of the $10 bad-debt expense on the following two tax-related
accounts: Current tax liability, Deferred tax asset (or deferred
tax liability) tax rate 30%, You need to relate your discussions to
the current tax worksheet as well as deferred tax worksheet.
The company issued the following debt: senior unsecured debt,
secured bonds (backed by a mortgage on a firm’s property) and
shareholder loans. In case of default the group of investors that
will be served as first from the proceeds from selling the property
is:
A. Holders of senior unsecured debt
B. Holders of secured debt
C. Shareholders who provided loan to the company