Are stockholders or bondholders more likely to prefer a safer less risky project group of answer choices?
Stockholders are generally more willing than bondholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns. The business will have a relatively high degree of risk, and it is expected that the firm will incur losses for the first few years.
Which of the following would be most likely to lead to higher interest rates on all debt securities in the economy quizlet?
Which of the following would be most likely to lead to higher interest rates on all debt securities in the economy? Corporations step up their expansion plans and thus increase their demand for capital. Explanation: An increase in the demand for capital by businesses will increase interest rates in the economy.
Why common stockholders can demand a higher rate of return than lenders?
You get a share of the earnings, depreciation, etc. Common stockholders are always last in line, and their earnings are highly variable because of this. Also, because their returns are so unpredictable, common shareholders demand a higher expected rate of return than lenders (bondholders).
Which of the following factors would be most likely to lead an increase in interest rates in the economy?
Explanation: When businesses decide to modernize and expand their manufacturing capacity and to install new equipment, they will need capital in order to do so. This decision by businesses will thus lead to an increase in investment demand. As the demand curve shifts to the right, the interest rate will increase.
Is a bondholder part owner of a company?
Unlike stocks, bonds do not offer ownership participation in a company through a return of profits or voting rights. Instead, they represent the issuer’s loan obligations and the likelihood of repayment, and other factors influence their pricing.
Why are stockholders more willing to invest in risky projects?
Stockholders are generally more willing than bondholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns. Jane Doe, who has substantial personal wealth and income, is considering the possibility of starting a new business in the chemical waste management field.
Why are bondholders more willing to invest than stockholders?
– Bondholders are generally more willing than stockholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns. – There is no good reason to expect a firm’s bondholders and stockholders to react differently to the types of new asset investments a firm makes.
Why are stockholders exposed to unlimited liability?
– Corporate stockholders are exposed to unlimited liability. – Due to limited liability, unlimited lives, and ease of ownership transfer, the vast majority of U.S. businesses (in terms of number of businesses) are organized as corporations.
What happens if the US Treasury issues 50 billion bonds?
Suppose the U.S. Treasury announces plans to issue $50 billion of new bonds. Assuming the announcement was not expected, what effect, other things held constant, would that have on bond prices and interest rates? – Prices and interest rates would both rise. – Prices would rise and interest rates would decline.
