Question

You are a financial advisor at the bond dealer Dewey, Cheatem, and Howe. Your client has informed you that she is on the Board of Directors of a company that needs to buy some bonds, but is only allowed to purchase investment grade bonds. You recommend the D-rated bonds of Dry Wells Oil Exploration, Inc. because, although the par value of the bonds is $1000, the current market price is only $200. Which of the following statements is False?

A. Your client will not be able to purchase these bonds
B. Investors clearly believe this company is not in danger of bankruptcy
C. You made a very recommendation
D. The yield to maturity of these bonds is higher than the coupon rate

Answer 1

B. Investors clearly believe this company is not in danger of bankruptcy

Step-by-step explanation:

The yield of these bonds is much higher than its coupon rate, that is why there market price is so low. Clearly, this company is almost bankrupt. Investment grade bonds are A bonds, these would be junk bonds. These bonds are a very risky investment, that is why their yield is so high.