1. Which of the following occurrences would increase the chances that a firm calls its outstanding callable bonds?
a) The company’s bonds are downgraded by Standard and Poor’s.
b) There is a significant increase in interest rates.
c) There is a sharp decline in market interest rates.
d) There is a significant deterioration in the firm’s financial position.
2. According to the Capital Asset Pricing Model, the relevant risk of a stock is that stock’s contribution of risk to the risk of a well-diversified portfolio.
a) True
b) False
3. Since floating-rate debt shifts interest rate risk to firms, it would be disadvantageous to issuers.
True or false