Answer to Question #125343 in Macroeconomics for nathan

Question

Suppose, you are hired by Microsoft Corporations as their Finance director. In order to expand its production, the company needed more capital funds. Microsoft Corporations is issuing shares and selling both short-term and long-term bonds. In order to assist, you the finance director are considering the prospect of helping finance their expansion. (10 points, 5 each).

a. If you were to buy both short- and long-term bonds from Microsoft Corporation, from which bond would you demand a higher rate of return: short or long term? Why?

b. If Apple Inc. (another multinational technology company) lowered the credit worthiness of, Microsoft Corporation would this affect the rate of return you would demand when buying their bonds? Why?

Answer 1

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