I am a bond investor of firm A. I am happy to see A's stock price go up.

Question

BlackTom AI · Accepted Answer

The prompt presents a scenario: a bond investor in firm A is happy to see A's stock price go up. 
Option 1: 'Make sense' — This could be argued if you consider that higher stock price might reflect better overall company health, potentially lowering perceived default risk and improving the firm’s financial standing. However, for a bond investor, stock price movements are not directly relevant to the returns or risk profile of the bond instrument, which is primarily governed by creditworthiness, interest payments, and default risk. Stock price is not a guaranteed indicator of bond performance, so labeling the sentiment as a typical or straightforward reaction for a bond investor is misleading. Hence this option is not the best choice.
Option 2: 'Make no sense' — This aligns with the idea that bond investors usually focus on bond-specific factors like covenants, yield, duration, credit risk, and cash flows. While a healthier company (as suggested by rising stock price) could indirectly improve credit quality, bond investors are not guaranteed to cheer at stock price increases, especially if the rise in equity price does not translate into enhanced bond value or reduced risk in the near term. The sentiment described is not an inherent or universal reaction for bond investors, making the statement problematic or not meaningful as a general principle. Therefore this option better captures the mismatch between stock movements and bond-focused investor sentiment.
In summary, the assertion that a bond investor would be happy simply because the stock price rose overlooks the primary concerns of bond investors and the distinct nature of equity versus debt investments. The reasoning shows why Option 1 overstates the typical relevance, while Option 2 correctly signals the lack of direct alignment between stock price movements and bond investor happiness.

BU.230.730.81.SP25 Final Exam- Requires Respondus LockDown Browser

I am a bond investor of firm A. I am happy to see A's stock price go up.

查看解析

登录即可查看完整答案

类似问题

Which of the following is not a reason that a company would want to issue bonds (debt) instead of stock?

The incentives of equity investors and lenders are well aligned in that both care about improving firms’ long-term value.

Which of the following is NOT debt security?

____ is a contractual obligation to pay back the amount that has been borrowed. The borrower owes principal and interest to the lender. Whereas_ provides ownership of the company to the shareholders.

更多留学生实用工具

考试浏览器助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单

BU.230.730.81.SP25 Final Exam- Requires Respondus LockDown Browser

I am a bond investor of firm A. I am happy to see A's stock price go up.

查看解析

登录即可查看完整答案

类似问题

Which of the following is not a reason that a company would want to issue bonds (debt) instead of stock?

The incentives of equity investors and lenders are well aligned in that both care about improving firms’ long-term value.

Which of the following is NOT debt security?

________ is a contractual obligation to pay back the amount that has been borrowed. The borrower owes principal and interest to the lender. Whereas_____ provides ownership of the company to the shareholders.

更多留学生实用工具

希望你的学习变得更简单

____ is a contractual obligation to pay back the amount that has been borrowed. The borrower owes principal and interest to the lender. Whereas_ provides ownership of the company to the shareholders.