Part A: Bond Features, Markets, and Pricing
1. Madeleine is correct. When an investor buys a bond, they lend money to the issuer with the expectation of receiving their initial investment back plus interest. Lexi is incorrect because buying a bond does not grant ownership in the company, which is what equity or stock does. Lauren's statement is overly simplistic and misleading; banks are significant buyers of bonds, but they are not the only participants. Bonds can be bought by individual investors, mutual funds, and other institutional investors.
2. Lexi's understanding of zero coupon bonds is partially correct; they are purchased at a discount to face value, not at face value, and mature at their face value without making regular interest payments. Lauren is incorrect because zero coupon bonds do not pay regular interest payments. Madeleine's statement is too general and not specific to zero coupon bonds, as not all bonds increase in value over time. Wally's statement is reversed; zero coupon bonds are bought at a discount, not a premium.
3. Both Wally and Ollie are incorrect. The feature described by Wally is known as a "call provision," not a...
A sinking fund provision requires the issuer to retire a portion of the bond issue each year, which helps protect bondholders by reducing default...
…value by the number of shares outstanding. This gives an industry-relative valuation based on book value.
11. Comparing Nanamobiles market-to-book ratio with those of its competitors provides insight into its relative valuation. A fair value can be estimated by applying an average or relevant market-to-book ratio to Nanamobiles' book value per share.
12. Market efficiency varies across market sizes and geographies. Sarah's view that all markets are efficient is too broad. Chloe and Olivia introduce valid considerations; small-cap markets and developing country markets often face less scrutiny and lower liquidity, potentially leading to inefficiencies. The degree of market efficiency can depend on factors like information availability, investor participation, and regulatory…
