Chapter 7 in the M: Finance textbook by Cornett, Adair, and Nofsinger provides an introduction to the main concepts of bonds and bond valuations. Bond concepts are important in finance, because the bond market is vital to finance and actually comprises a larger market than does the stock market. Review Chapter 7, with particular emphasis on the "Bond Market Overview" and "Credit Risk" sections.
Address the following:
- Describe the different reasons that the U.S. government, local governments, and corporations might issue bonds.
- One company has issued two bond classes. One issue is a mortgage bond and the other is a debenture. Which issue will have a higher bond rating and which issue will offer a higher yield? Why?
- If you were purchasing bonds, would you prefer debentures or mortgage bonds? Why?
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