If a Corporation Offers Greater Protection to a Given Class

question 116

True/False

If a corporation offers greater protection to a given class of bondholders, it must raise the interest rate on its bonds to make them more attractive to investors.
In keeping with risk/return, greater protection lowers risk, therefore investors cannot expect as great a return as if that protection were absent.

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Definitions:

Cost

The cost involved in buying an item or the financial outlay needed to produce a good or service.

Mark-up

The amount added to the cost price of goods to cover overhead and profit, expressed as a percentage of the cost.

Markdown

A reduction from the original or listed price of a good or service, often used to stimulate sales or clear out inventory.

Gross Profit

The financial term for the difference between revenue and the cost of goods sold, before deducting overheads, payroll, taxation, and interest payments.