Exam 6: Bonds Debtcharacteristics and Valuation

Rolling Coast Inc. issued BBB bonds two years ago. These bonds provided a yield to maturity (YTM) of 11.5 percent. Long-term risk-free government bonds were yielding 8.7 percent at the time. The current risk premium on BBB bonds versus government bonds is half of what it was two years ago. If the risk-free long-term government bonds are currently yielding 7.8 percent, then at what interest rate should Rolling Coast expect to issue new bonds?

Foreign debt is a debt instrument sold by a foreign borrower that is denominated in the currency of the country in which it is sold.

Which of the following statements is true about commercial paper?

When the market value of debt is the same as its face value, it is said to be selling at the:

The face value of a debt is:

Which of the following is generally considered an advantage of term loans over publicly issued bonds?

The maturity of commercial paper varies from:

The principal value generally is written on the outside cover of the debt contract, so it is sometimes called the:

If a bond is selling for less than its face, or maturity, value and the market interest rate remains unchanged during the life of the bond, then the price (value) of the bond will increase as the maturity date nears.

Which of the following bonds pays interest based on an inflation index?

The terms and conditions of a bond are set forth in its:

Foreign debt is debt sold in a country other than the one in whose currency the debt is denominated

Cold Boxes Corporation has 100 bonds outstanding with a maturity value of $1,000. The required rate of return on these bonds is currently 10 percent, and interest is paid semiannually. The bonds mature in 5 years, and their current market value is $768 per bond. The annual coupon interest rate is: (Round the answer to the nearest whole number.)

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

Which of the following statements is true about a zero coupon bond?

The principal value of debt is:

High-risk, high-yield bonds used to finance mergers, leveraged buyouts, and troubled companies are referred to as:

A bond with a $100 annual interest payment and $1,000 face value with five years to maturity (not expected to default) would sell for a premium if interest rates were below 9% and would sell for a discount if interest rates were greater than 11%.

Bonds issued by BB&C Communications that have a coupon rate of interest equal to 10 percent currently have a yield to maturity (YTM) equal to 8 percent. Based on this information, it is understood that BB&C's bonds must currently be selling at a premium in the financial markets.

There is an inverse relationship between bond ratings and the required return on a bond. The required return is lowest for AAA rated bonds, and required returns increase as the ratings get lower (worse).