1. BCD Corp. has announced that its main product is no longer selling well. Analysts now expect that BCS earnings will fall by 50% over the next two years. Which of the following is the effect of this news on the BCD stock price?
(a) the price will decrease only when the lower earnings are realized in two years
(b) the price will decrease only when dividends paid by BCD decrease
(c) BCD Corp. stock price will fall immediately after the news is announced
(d) none of the above
2. Today, WXZ issued a fixed rate bond paying interest of 5.25%, with face value of $1,000 and a 30 year maturity. The bond was issued with a price of $990 and was rated AAA by Standard & Poors. Without doing any calculations, which of the following is false?
(a) the bond's rating may change over the life of a bond
(b) the coupon rate will not change over the 30 year life
(c) when issued, the bond paid more interest than investors required given the risk
(d) when issued, the bond rating was so low that the bond was considered to be a “junk bond”