Exam 5: Bonds, Bond Valuation, and Interest Rates

McCurdy Co.'s Class Q bonds have a 12-year maturity, $1,000 par value, and a 5.75% coupon paid semiannually (2.875% each 6 months), and those bonds sell at their par value.McCurdy's Class P bonds have the same risk, maturity, and par value, but the P bonds pay a 5.75% annual coupon.Neither bond is callable.At what price should the annual payment bond sell?

Noncallable bonds that mature in 10 years were recently issued by Sternglass Inc.They have a par value of $1,000 and an annual coupon of 5.5%.If the current market interest rate is 7.0%, at what price should the bonds sell?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

You are considering three different bonds for your portfolio.Each bond has a 10-year maturity and a yield to maturity of 10%.Bond X has an 8% annual coupon, Bond Y has a 10% annual coupon, and Bond Z has a 12% annual coupon.Which of the following statements is CORRECT?

Ranger Inc.would like to issue new 20-year bonds.Initially, the plan was to make the bonds non-callable.If the bonds were made callable after 5 years at a 5% call premium, how would this affect their required rate of return?

Assume that a 10-year Treasury bond has a 12% annual coupon, while a 15-year T-bond has an 8% annual coupon.Assume also that the yield curve is flat, and all Treasury securities have a 10% yield to maturity.Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Reinegar Corporation is planning two new issues of 25-year bonds.Bond Par will be sold at its $1,000 par value, and it will have a 10% semiannual coupon.Bond OID will be an Original Issue Discount bond, and it will also have a 25-year maturity and a $1,000 par value, but its semiannual coupon will be only 6.25%.If both bonds are to provide investors with the same effective yield, how many of the OID bonds must Reinegar issue to raise $3,000,000? Disregard flotation costs, and round your final answer up to a whole number of bonds.

The Gergen Group's 5-year bonds yield 6.85%, and 5-year T-bonds yield 4.75%.The real risk-free rate is r* = 2.80%, the default risk premium for Gergen's bonds is DRP = 0.85% versus zero for T-bonds, the liquidity premium on Gergen's bonds is LP = 1.25%, and the maturity risk premium for all bonds is found with the formula MRP = (t − 1) × 0.1%, where t = number of years to maturity.What is the inflation premium (IP) on 5-year bonds?

Which of the following statements is NOT CORRECT?

Because short-term interest rates are much more volatile than long-term rates, you would, in the real world, generally be subject to much more interest rate price risk if you purchased a 30-day bond than if you bought a 30-year bond.

Which of the following statements is CORRECT?

Bond A has a 9% annual coupon, while Bond B has a 7% annual coupon.Both bonds have the same maturity, a face value of $1,000, and an 8% yield to maturity.Which of the following statements is CORRECT?

Floating-rate debt is advantageous to investors because the interest rate moves up if market rates rise.Since floating-rate debt shifts interest rate risk to companies, it offers no advantages to issuers.

5-year Treasury bonds yield 5.5%.The inflation premium (IP) is 1.9%, and the maturity risk premium (MRP) on 5-year bonds is 0.4%.What is the real risk-free rate, r*?

Which of the following statements is CORRECT?

A Treasury bond has an 8% annual coupon and a 7.5% yield to maturity.Which of the following statements is CORRECT?

A call provision gives bondholders the right to demand, or "call for," repayment of a bond.Typically, calls are exercised if interest rates rise, because when rates rise the bondholder can get the principal amount back and reinvest it elsewhere at higher rates.

A 15-year bond has an annual coupon rate of 8%.The coupon rate will remain fixed until the bond matures.The bond has a yield to maturity of 6%.Which of the following statements is CORRECT?