Exam 7: The Valuation and Characteristics of Bonds

A bond issued by Liberty,Inc.10 years ago has a coupon rate of 8% and a face value of $1,000.The bond will mature in 15 years.What is the value to an investor with a required return of 12.5%?

Federal regulations make it impossible for rating agencies to drop a company's credit rating more than two notches at a time in order to prevent panic in bond markets.

In Excel,the variable pv stands for a bond's par value.

The correct relationship for a premium bond is

The less risky the bond (or the higher the bond rating)the lower will be the yield to maturity on the bond.

ND Electric Company issued $1,000 bonds that have an annual coupon rate of 6.5%.The present market value of the bonds is $1,225.If the bonds have 17 years remaining until maturity,what is the current yield on ND Electric Company bonds?

If the demand for a new bond issue increases,it is likely that the coupon rate will be adjusted upward by the issuing company.

Jackson Corp.$1,000 par value bonds currently sell for $752.18.The coupon rate is 7 percent,paid semiannually.If the bonds have 6 years before maturity,what is the yield to maturity on the bonds?

Subordinated debentures are more risky than unsubordinated debentures because the claims of subordinated debenture holders are less likely to be honored in the event of liquidation.

Alice Kitchen's,Inc.bonds have a 10% coupon rate with semiannual coupon payments.They have years to maturity and a par value of $1,000.Compute the value of Alice's bonds if investors' required rate of return is 8%.

Which of the following statements concerning junk bonds is MOST correct?

A mortgage bond is secured by a lien on real property.

What are the three important elements of asset valuation?

Visionary TV Corporation bonds are currently priced at $1,088.They have a par value of $1,000 and 12 years to maturity.They pay an annual coupon rate of 6%.What is the yield to maturity on this bond?

Facade Securities has an issue of $1,000 par value bonds with 18 years remaining to maturity.The bonds pay 7.7% interest on a semiannual basis.The current market price of the bonds is $1,175.What is the yield-to-maturity of the bonds?

If two bonds have the same yield to maturity,they also have the same current yield.

Harold considers investing in an LM Corp.bond and decides not to purchase the bond.Which of the following statements is MOST correct?

Which of the following statements is MOST correct?

The interest on corporate bonds is typically paid

If a firm were to experience financial insolvency,the legal system provides an order of hierarchy for the payment of claims.Assume that a firm has the following outstanding securities: mortgage bonds,common stock,debentures,and preferred stock.Rank the order in which investors that own mortgage bonds would have their claim paid?