Exam 6: Bonds Debtcharacteristics and Valuation

A bond that can be redeemed for cash at the bondholder's option is called a(n):

If a bond's yield to maturity exceeds its coupon rate, the bond's:

For installment loans, the maturity date is:

A bond that only pays interest if the firm has sufficient earnings to cover the interest payments is called a(n):

A debt backed by some form of specific property is known as a:

Recently, Ohio Hospitals Inc. filed for bankruptcy. The firm was reorganized as American Hospitals Inc., and the court permitted a new indenture on an outstanding bond issue to be put into effect. The issue has 10 years to maturity and a coupon rate of 10 percent, paid annually. The new agreement allows the firm to pay no interest for 5 years. Then, interest payments will be resumed for the next 5 years. Finally, at maturity (Year 10), the principal plus the interest that was not paid during the first 5 years will be paid. However, no interest will be paid on the deferred interest. If the required return is 20 percent, what should the bonds sell for in the market today? (Round the answer to two decimal places.)

All else being equal, an increase in the yield to maturity of a bond will result in:

Assume that an investor wishes to purchase a 20-year bond with a maturity value of $1,000 and semiannual interest payments of $40. If the investor requires a 10 percent simple yield to maturity on this investment, what is the maximum price she should be willing to pay for the bond? (Round the answer to the nearest whole number.)

A sinking fund call:

A _____ is assigned to represent the bondholders and to guarantee that the terms of the indenture are carried out.

If the yield to maturity (the market rate of return) of a bond is less than its coupon rate, the bond should be:

A firm's rating by a rating agency is based on:

GP&L sold $1,000,000 of 12 percent, 30-year, semiannual payment bonds 15 years ago. The bonds are not callable, but they do have a sinking fund which requires GP&L to redeem 5 percent of the original face value of the issue each year ($50,000), beginning in Year 11. To date, 25 percent of the issue has been retired. The company can either call bonds at par for sinking fund purposes or purchase bonds in the open market, spending sufficient money to redeem 5 percent of the original face value each year. If the yield to maturity (15 years remaining) on the bonds is currently 14 percent, what is the least amount of money GP&L must put in to satisfy the sinking fund provision? (Round the answer to the nearest whole number.)

A bond differs from a term loan in that:

The principal value is also referred to as the maturity value because:

Stephanie purchased a corporate bond that matures in three years. The bond has a coupon interest rate of 9 percent and its yield to maturity is 6 percent. If market interest rates remain constant and Stephanie sells the bond in 12 months, her capital gain from holding the bond will be:

The average rate of return earned on a bond if it is held until the first call date is the:

LIBOR is the acronym for London Interbank Offer Rate, which is an average of interest rates offered by London banks to U.S. corporations.

As a bond's rating serves as an indicator of its default risk, the rating has a direct, measurable influence on the firm's:

A 20-year original maturity bond with 1 year left to maturity has more interest rate price risk than a 10-year original maturity bond with 1 year left to maturity. (Assume that the bonds have equal default risk and equal coupon rates.)