Investment

Incrase
Since the company has more debt and the risk to the existing bondholders is now increased, the Yield to Maturity will increase.

100.	What would be the likely effect on the yield to maturity of a bond resulting from an increase in the issuing firm’s quick ratio? Decrease Since the company has either fewer current liabilities or an increase in various current assets the Yield to Maturity will decrease.
101.	Why do bond prices go down when interest rates go up? Don’t bond investors like to receive high interest rates? Bond prices and interest rates are inversely proportional. So, an increase in interest rates decreases the bond prices. If the interest rates are lower, investors would not want to invest in such bonds that would lead to its decline. This inverse relationship between interest rate and present value can be noted from the decrease in present value of future cash flows with increase in discount rate
102.	How can a perpetuity, which has an infinite maturity, have a duration as short as 10 or 20 years? When the present value approaches zero for cash flows in the distant future When the present value approaches zero for cash flows in the distant future, these distant cash flows have little impact and eventually no impact on the weighted average. Hence they have a short duration.
103.	What are the differences between bottom-up and top-down approaches to security valuation? The top-down approach analyzes risk by aggregating the impact of internal operational failures while the bottom-up approach analyzes the risks in an individual process using models. The top-down approach doesn’t differentiate between high-frequency low severity and low-frequency high severity events while the bottom-up approach does. The top-down approach is simple and not data-intensive whereas the bottom-up approach is complex as well as very data-intensive. Top-down approaches are backward-looking while bottom-up approaches are forward-looking. These are the basics of the top-down approach and the bottom-up approach.
104.	What are the advantages of a top-down approach The biggest advantage of the top-down approach is the provision of structured approach to incorporate the impact of economic and financial variables into analysis of a company’s stock.?
105.	Why does it make intuitive sense that the slope of the yield curve is considered a leading economic indicator? Because it incorporates future interest rates A line on graph that depicts the yield of debt instruments against the time remaining to maturity. Since the curve incorporates future interest rates and hence reflects future expectations, it is considered a leading indicator.
106.	Define cyclical companies