Assume that interest rates on 15-year noncallable Treasury and corporate bonds with different ratings are as follows: $\begin{array}{ll} \text { T-bond }=7.72 \% & \mathrm{~A}=9.64 \% \\ \mathrm{ALA}=8.72 \% & \mathrm{BBB}=10.18 \% \end{array}$ The differences in rates among these issues were most probably caused primarily by:

A) Tax effects. B) Default risk differences. C) Maturity risk differences. D) Inflation differences. E) Real risk-free rate differences. A) Tax effects. B) Default risk differences. C) Maturity risk differences. D) Inflation differences. E) Real risk-free rate differences.

Exam 5: Bonds, Bond Valuation, and Interest Rates

Bonds A, B, and C all have a maturity of 15 years and a yield to maturity of 9%.Bond A's price exceeds its par value, Bond B's price equals its par value, and Bond C's price is less than its par value.Which of the following statements is CORRECT?

(Multiple Choice)

4.8/5

(73)

Question 81

If its yield to maturity declined by 1%, which of the following bonds would have the largest percentage increase in value?

(Multiple Choice)

4.8/5

(81)

Question 82

Which of the following statements is CORRECT?

(Multiple Choice)

4.8/5

(91)

Question 83

Assume that interest rates on 15-year noncallable Treasury and corporate bonds with different ratings are as follows: T-bond =7.72\% =9.64\% =8.72\% =10.18\% The differences in rates among these issues were most probably caused primarily by:

(Multiple Choice)

4.8/5

(70)

Question 84

The desire for floating-rate bonds, and consequently their increased usage, arose out of the experience of the early 1980s, when inflation pushed interest rates up to very high levels and thus caused sharp declines in the prices of outstanding bonds.

(True/False)

4.8/5

(82)

Question 85

Meacham Enterprises' bonds currently sell for $1,280 and have a par value of $1,000.They pay a $135 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,050.What is their yield to call (YTC)?

(Multiple Choice)

4.8/5

(77)

Question 86

If 10-year T-bonds have a yield of 6.2%, 10-year corporate bonds yield 8.5%, the maturity risk premium on all 10-year bonds is 1.3%, and corporate bonds have a 0.4% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the corporate bond?

(Multiple Choice)

4.9/5

(89)

Question 87

"Restrictive covenants" are designed primarily to protect bondholders by constraining the actions of managers.Such covenants are spelled out in bond indentures.

(True/False)

4.8/5

(78)

Question 88

Curtis Corporation's noncallable bonds currently sell for $1,165.They have a 15-year maturity, an annual coupon of $95, and a par value of $1,000.What is their yield to maturity?

(Multiple Choice)

4.8/5

(91)

Question 89

Kessen Inc.'s bonds mature in 7 years, have a par value of $1,000, and make an annual coupon payment of $70.The market interest rate for the bonds is 8.5%.What is the bond's price?

(Multiple Choice)

4.9/5

(75)

Question 90

The market value of any real or financial asset, including stocks, bonds, or art work purchased in hope of selling it at a profit, may be estimated by determining future cash flows and then discounting them back to the present.

(True/False)

5.0/5

(79)

Question 91

A 25-year, $1,000 par value bond has an 8.5% annual coupon.The bond currently sells for $875.If the yield to maturity remains at its current rate, what will the price be 5 years from now?

(Multiple Choice)

4.8/5

(72)

Question 92

Gilligan Co.'s bonds currently sell for $1,150.They have a 6.75% annual coupon rate and a 15-year maturity, and are callable in 6 years at $1,067.50.Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future.Under these conditions, what rate of return should an investor expect to earn if he or she purchases these bonds, the YTC or the YTM?

(Multiple Choice)

4.8/5

(82)

Question 93

If a firm raises capital by selling new bonds, it is called the "issuing firm," and the coupon rate is generally set equal to the required rate on bonds of equal risk.

(True/False)

4.8/5

(68)

Question 94

One year ago Lerner and Luckmann Co.issued 15-year, noncallable, 7.5% annual coupon bonds at their par value of $1,000.Today, the market interest rate on these bonds is 5.5%.What is the current price of the bonds, given that they now have 14 years to maturity?

(Multiple Choice)

4.7/5

(80)

Question 95

The prices of high-coupon bonds tend to be less sensitive to a given change in interest rates than low-coupon bonds, other things held constant.

(True/False)

4.7/5

(81)

Question 96

Rogoff Co.'s 15-year bonds have an annual coupon rate of 9.5%.Each bond has face value of $1,000 and makes semiannual interest payments.If you require an 11.0% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

(Multiple Choice)

4.8/5

(81)

Question 97

Stephenson Co.'s 15-year bond with a face value of $1,000 currently sells for $850.Which of the following statements is CORRECT?

(Multiple Choice)

4.9/5

(74)

Question 98

Haswell Enterprises' bonds have a 10-year maturity, a 6.25% semiannual coupon, and a par value of $1,000.The going interest rate (r_d) is 4.75%, based on semiannual compounding.What is the bond's price?

(Multiple Choice)

4.9/5

(85)

Question 99

Perry Inc.'s bonds currently sell for $1,150.They have a 6-year maturity, an annual coupon of $85, and a par value of $1,000.What is their current yield?

(Multiple Choice)

4.7/5

(82)

Question 100

Showing 81 - 100 of 100

Exam 5: Bonds, Bond Valuation, and Interest Rates

Bonds A, B, and C all have a maturity of 15 years and a yield to maturity of 9%.Bond A's price exceeds its par value, Bond B's price equals its par value, and Bond C's price is less than its par value.Which of the following statements is CORRECT?

If its yield to maturity declined by 1%, which of the following bonds would have the largest percentage increase in value?

Which of the following statements is CORRECT?

Assume that interest rates on 15-year noncallable Treasury and corporate bonds with different ratings are as follows: T-bond =7.72\% =9.64\% =8.72\% =10.18\% The differences in rates among these issues were most probably caused primarily by:

The desire for floating-rate bonds, and consequently their increased usage, arose out of the experience of the early 1980s, when inflation pushed interest rates up to very high levels and thus caused sharp declines in the prices of outstanding bonds.

Meacham Enterprises' bonds currently sell for $1,280 and have a par value of $1,000.They pay a $135 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,050.What is their yield to call (YTC)?

If 10-year T-bonds have a yield of 6.2%, 10-year corporate bonds yield 8.5%, the maturity risk premium on all 10-year bonds is 1.3%, and corporate bonds have a 0.4% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the corporate bond?

"Restrictive covenants" are designed primarily to protect bondholders by constraining the actions of managers.Such covenants are spelled out in bond indentures.

Curtis Corporation's noncallable bonds currently sell for $1,165.They have a 15-year maturity, an annual coupon of $95, and a par value of $1,000.What is their yield to maturity?

Kessen Inc.'s bonds mature in 7 years, have a par value of $1,000, and make an annual coupon payment of $70.The market interest rate for the bonds is 8.5%.What is the bond's price?

The market value of any real or financial asset, including stocks, bonds, or art work purchased in hope of selling it at a profit, may be estimated by determining future cash flows and then discounting them back to the present.

A 25-year, $1,000 par value bond has an 8.5% annual coupon.The bond currently sells for $875.If the yield to maturity remains at its current rate, what will the price be 5 years from now?

If a firm raises capital by selling new bonds, it is called the "issuing firm," and the coupon rate is generally set equal to the required rate on bonds of equal risk.

One year ago Lerner and Luckmann Co.issued 15-year, noncallable, 7.5% annual coupon bonds at their par value of $1,000.Today, the market interest rate on these bonds is 5.5%.What is the current price of the bonds, given that they now have 14 years to maturity?

The prices of high-coupon bonds tend to be less sensitive to a given change in interest rates than low-coupon bonds, other things held constant.

Rogoff Co.'s 15-year bonds have an annual coupon rate of 9.5%.Each bond has face value of $1,000 and makes semiannual interest payments.If you require an 11.0% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

Stephenson Co.'s 15-year bond with a face value of $1,000 currently sells for $850.Which of the following statements is CORRECT?

Haswell Enterprises' bonds have a 10-year maturity, a 6.25% semiannual coupon, and a par value of $1,000.The going interest rate (rd) is 4.75%, based on semiannual compounding.What is the bond's price?

Perry Inc.'s bonds currently sell for $1,150.They have a 6-year maturity, an annual coupon of $85, and a par value of $1,000.What is their current yield?

An Overview of Financial Management and the Financial Environment

Financial Statements, Cash Flow, and Taxes

Analysis of Financial Statements

Time Value of Money

Risk and Return

Corporate Valuation and Stock Valuation

Financial Options and Applications in Corporate Finance

The Cost of Capital

The Basics of Capital Budgeting: Evaluating Cash Flows

Cash Flow Estimation and Risk Analysis

Corporate Valuation and Financial Planning

Corporate Governance

Distributions to Shareholders: Dividends and Repurchases

Capital Structure Decisions

Supply Chains and Working Capital Management

Multinational Financial Management

Public and Private Financing: Initial Offerings, Seasoned Offerings, and Investment Banks

Lease Financing

Hybrid Financing: Preferred Stock, Warrants, and Convertibles

Dynamic Capital Structures and Corporate Valuation

Mergers and Corporate Control

Enterprise Risk Management

Bankruptcy, Reorganization, and Liquidation

Portfolio Theory and Asset Pricing Models

Real Options

Providing and Obtaining Credit

Advanced Issues in Cash Management and Inventory Control

Pension Plan Management

Financial Management in Not-For-Profit Businesses

Filters

Haswell Enterprises' bonds have a 10-year maturity, a 6.25% semiannual coupon, and a par value of $1,000.The going interest rate (r_d) is 4.75%, based on semiannual compounding.What is the bond's price?