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Question: company 1 and company 2 are comparable companies bond 1...

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Company 1 and Company 2 are comparable companies. Bond 1 was issued by Company 1 and Bond 2 was issued by Company 2. Bond 1 and Bond 2 both currently trade at par and are yielding 5.0%. Bond 1 is callable at $1050 while Bond 2 is puttable at $950. $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 S- Bond Price (Y-Axis) vs. Yield to Maturity (X-Axis) 79.75 1,270.68 1,194.61 $1,12.o7 022 27 31 884 3 1,171.9 1,000.00 93 587834 5841 75 $806.9 00% 1.0% 2.0% 3.0% 40% 5056 6.0% 7.0% 8.0% 9.0% 10.0% BONDBOND 2 12. Bond Is YTM instantaneously falls to 4.0% while Bond 2s YTM instantaneously increases to 6.0%. Which of the following is statements is (are) most likely TRUE: I. Bond 1s credit rating was just downgraded by a credit rating agency Il. Bond 2s credit rating was just upgraded by a credit rating agency Ill. Company1 will buy the bond back from the creditors IV. Company 1s creditors will buy the bond back from the company V. Company 2s creditors will sell the bond back to the company E. IV 13. Assume that ROE is the only factor which impacts a stocks price; the higher a stocks ROE, the better the stock will perform. You are considering buying only one of the following: a defensive company with low debt, a defensive company with high debt, a cyclical company with low debt, or a cyclical company with high debt. Given the position in the business cycle, which statement is most accurate? A. When entering a recession, buy a cyclical company with low leverage B. When entering a recession, buy a defensive company with low leveroge C. During the expansion phase of a business cycle, buy a defensive company with high leveroge D. During the expansion phase of a business cycle, buy a cyclical company with low leverage E. During the expansion phase of a business cycle, buy a cyclical company with high leverage

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