Why is a default rate not a good sole indicator of the potential performance of a portfolio of high-yield corporate bond?
What will be an ideal response?
To assess the potential return from investing in corporate debt obligations, more than just default ratesare needed. The reason is that default rates by themselves are not of paramount significance.It is perfectly possible for a portfolio of corporate debt obligations to suffer defaults and tooutperform a portfolio of U.S. Treasuries at the same time, provided the yield spread of the portfolio is sufficientlyhigh to offset the losses from default. Furthermore, holders of defaulted bonds typicallyrecover a percentage of the face amount of their investments. This is called therecovery rate. Therefore, an important measure in evaluating investments in corporate debt is the default loss rate, which is defined as follows:
Default loss rate = Default rate × (100% ? Recovery rate).
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When can an offeror who has promised to keep the offer open to a specific date, be able to validly withdraw their offer before that date?
A) The offeror gives a reasonable explanation for his decision to withdraw the offer B) At any time so long as the other party had not paid for an option to keep it open C) They would not be allowed to just withdraw the offer D) The offeror does not intend to make a new offer concerning the same subject matter to any other person for a greater consideration E) They can only withdraw it if a reasonable time has passed or a set date was set to revoke the offer
A corporation announces a large increase in its annual dividend, but its stock price declines. This
could result from A) residual dividend theory. B) perfect capital markets. C) bird-in-the-hand theory. D) MM's indifference theorem.