1. If a corporation enters bankruptcy and liquidates assets, seniority (i.e., which group gets paid first, second, and last) is as follows:
A. common stockholders (first), preferred stockholders (second), bondholders (last)
B. common stockholders (first), bondholders (second), preferred stockholders (last)
C. preferred stockholders (first), bondholders (second), common stockholders (last)
D. preferred stockholders (first), common stockholders (second), bondholders (last)
E. bondholders (first), preferred stockholders (second), common stockholders (last)
F. bondholders (first), common stockholders (second), preferred stockholders (last)
2. Consider three bonds with identical credit ratings and 8.00% coupon rates, all making annual coupon payments and all selling at a face value of $1,000. The short-term bond has a maturity of 4 years, the intermediate-term bond has maturity of 8 years, and the long-term bond has maturity of 30 years. Which bond’s price would you expect to be most affected by a fall in interest rates?
A. The short-term bond with a maturity of 4 years
B. The intermediate-term bond with a maturity of 8 years
C. The long-term bond with a maturity of 30 year