Exam 7: Bonds and Their Valuation

In order to accurately assess the capital structure of a firm,it is necessary to convert its balance sheet figures from historical book values to market values.KJM Corporation's balance sheet (book values)as of today is as follows: Long-term debt (bonds, at par) \ 23,500,000 Preferred stock 2,000,000 Common stock ( \ 10 par) 10,000,000 Retained earnings 4,000,000 Total debt and equity \3 9,500,000 ? The bonds have a 8.3% coupon rate,payable semiannually,and a par value of $1,000.They mature exactly 10 years from today.The yield to maturity is 11%,so the bonds now sell below par.What is the current market value of the firm's debt?

Which of the following statements is CORRECT?

Grossnickle Corporation issued 20-year,noncallable,7.4% annual coupon bonds at their par value of $1,000 one year ago.Today,the market interest rate on these bonds is 5.5%.What is the current price of the bonds,given that they now have 19 years to maturity?

Which of the following events would make it more likely that a company would call its outstanding callable bonds?

Which of the following statements is CORRECT?

Malko Enterprises' bonds currently sell for $1,020.They have a 6-year maturity,an annual coupon of $75,and a par value of $1,000.What is their current yield?

Ryngaert Inc.recently issued noncallable bonds that mature in 15 years.They have a par value of $1,000 and an annual coupon of 5.7%.If the current market interest rate is 7.0%,at what price should the bonds sell?

Under normal conditions,which of the following would be most likely to increase the coupon rate required for a bond to be issued at par?

Keenan Industries has a bond outstanding with 15 years to maturity,an 8.25% nominal coupon,semiannual payments,and a $1,000 par value.The bond has a 6.50% nominal yield to maturity,but it can be called in 6 years at a price of $1,045.What is the bond's nominal yield to call?

Which of the following statements is CORRECT?

Assume that a noncallable 10-year T-bond has a 12% annual coupon,while a 15-year noncallable 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?

Sadik Inc.'s bonds currently sell for $1,300 and have a par value of $1,000.They pay a $105 annual coupon and have a 15-year maturity,but they can be called in 5 years at $1,100.What is their yield to call (YTC)?