A Small Company That Issues Bonds for the First Time

question 46

Multiple Choice

A small company that issues bonds for the first time may have to offer them at a high yield because the bonds will

• A)not be as liquid as many other corporate bonds.
• B)be less risky than many other corporate bonds.
• C)be less costly to gather information on than other corporate bonds.
• D)be subject to a lower tax rate than other corporate bonds.

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Definitions:

Accounting Profit

Accounting profit is the net income for a company calculated by subtracting total expenses from total revenues, according to generally accepted accounting principles.

Explicit Costs

Payments made directly to individuals or entities for wages, rent, and materials as part of business operations.

Items

Individual objects, products, or units that are part of a list, collection, or inventory available for sale or distribution.

Accounting Cost

The recorded expenses associated with the operation of a business, including both fixed and variable costs.