Question 1

A bond is a long-term promissory note issued by the firm.

Accepted Answer

A) True 
 B)False

Question 2

The current yield is greater than the coupon rate for a bond selling above par value.

Accepted Answer

A) True 
 B)False

Question 3

How does the bond rating affect an investor's required rate of return? What factors affect a bond's rating?

Accepted Answer

Ratings involve a judgment about the fut

Question 4

A bond's yield to maturity depends upon all of the following EXCEPT

Accepted Answer

A)  the individual investor's required return. 
B)  the maturity of the bond. 
C)  the coupon rate. 
D)  the bond's risk as reflected by the bond rating. 
A)  the individual investor's required return. 
B)  the maturity of the bond. 
C)  the coupon rate. 
D)  the bond's risk as reflected by the bond rating.

Question 5

As market rates of interest rise,investors move their funds into bonds,thus increasing their price and lowering their yield.

Accepted Answer

A) True 
 B)False

Question 6

In an efficient market,two investors may agree on the amount and timing of a bond's expected cash flows and also on the bond's risk level,as measured by its debt rating,and still determine two different values for the bond.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is true regarding convertible bonds?

Accepted Answer

A)  The holder has the right to sell these bonds back to the issuer if the bonds don't perform well. 
B)  The holder can convert these bonds into an equal number of new bonds if they choose to do so. 
C)  These bonds are convertible into common stock of the issuing firm at a prespecified price. 
D)  These bonds have a variable interest rate. 
A)  The holder has the right to sell these bonds back to the issuer if the bonds don't perform well. 
B)  The holder can convert these bonds into an equal number of new bonds if they choose to do so. 
C)  These bonds are convertible into common stock of the issuing firm at a prespecified price. 
D)  These bonds have a variable interest rate.

Question 8

When using the pv (present value)function in Excel to calculate bond values,the bond's coupon rate is entered as the Rate variable.

Accepted Answer

A) True 
 B)False

Question 9

What is the value of a bond that matures in 17 years,makes an annual coupon payment of $50,and has a par value of $1,000? Assume a required rate of return of 5.90%.

Accepted Answer

A)  $823.48 
B)  $856.98 
C)  $895.23 
D)  $905.02 
A)  $823.48 
B)  $856.98 
C)  $895.23 
D)  $905.02

Question 10

A bond selling at a discount will have a built-in capital gain if the bond is held to maturity.

Accepted Answer

A) True 
 B)False

Question 11

Master Craft Control Inc.has bonds that mature in 6 1/2 years with a par value of $1,000.They pay a coupon rate of 9% with semiannual payments.If the required rate of return on these bonds is 11% what is the bond's value?

Accepted Answer

A)  $1,026.73 
B)  $973.76 
C)  $1,022.74 
D)  $908.83 
A)  $1,026.73 
B)  $973.76 
C)  $1,022.74 
D)  $908.83

Question 12

Which of the following bond provisions will make a bond more desirable to investors,other things being equal?

Accepted Answer

A)  The bond is convertible. 
B)  The bond is callable. 
C)  The coupon rate is lower. 
D)  The bond is subordinated. 
A)  The bond is convertible. 
B)  The bond is callable. 
C)  The coupon rate is lower. 
D)  The bond is subordinated.

Question 13

A $1,000 par value 14-year bond with a 10 percent coupon rate recently sold for $965.The yield to maturity is

Accepted Answer

A)  10.49%. 
B)  10.00%. 
C)  8.87%. 
D)  6.50%. 
A)  10.49%. 
B)  10.00%. 
C)  8.87%. 
D)  6.50%.

Question 14

Charlie Corporation has two bonds outstanding.Both bonds mature in 10 years,have a face value of $1,000,and have a yield to maturity of 8%.One bond is a zero coupon bond and the other bond has a coupon rate of 8%.Which of the following statements is true?

Accepted Answer

A)  Both bonds must sell for the same price if markets are in equilibrium. 
B)  The zero coupon bond must have a higher price because of its greater capital gain potential. 
C)  The zero coupon bond must sell for a lower price than the bond with an 8% coupon rate. 
D)  All rational investors will prefer the 8% bond because it pays more interest. 
A)  Both bonds must sell for the same price if markets are in equilibrium. 
B)  The zero coupon bond must have a higher price because of its greater capital gain potential. 
C)  The zero coupon bond must sell for a lower price than the bond with an 8% coupon rate. 
D)  All rational investors will prefer the 8% bond because it pays more interest.

Question 15

Pentrax Corp.issued 25 year bonds in 2002 with a coupon rate of 6% and a face value of $1,000.The bonds sold for face value when issued.Since 2002,interest rates have increased,so the going rate on similar bonds is now 9%.Which of the following statements is MOST accurate?

Accepted Answer

A)  An investor who purchased an Pentrax bond in 2002 and plans to keep the bond until it matures expects to earn 6% per year over the life of the bond. 
B)  Pentrax Corp. must now pay bondholders interest payments of $90 per year due to the increase in interest rates. 
C)  An investor who purchased an Pentrax bond in 2002 and plans to keep the bond until it matures expects an increase in return from 6% per year to 9% per year. 
D)  The price of an Pentrax Corp. bond should be higher than $1,000 due to the increase in rates. 
A)  An investor who purchased an Pentrax bond in 2002 and plans to keep the bond until it matures expects to earn 6% per year over the life of the bond. 
B)  Pentrax Corp. must now pay bondholders interest payments of $90 per year due to the increase in interest rates. 
C)  An investor who purchased an Pentrax bond in 2002 and plans to keep the bond until it matures expects an increase in return from 6% per year to 9% per year. 
D)  The price of an Pentrax Corp. bond should be higher than $1,000 due to the increase in rates.

Question 16

A zero coupon bond is selling for $476.The bond has a face value of $1,000 and matures in 8 years.Your friend asks you if he should buy the bond.He tells you his required return is 9 percent.Would you recommend he buy the bond or not? Explain your answer.

Accepted Answer

The yield to maturity on the z

Question 17

Progressive Corporation issued callable bonds.The bonds are most likely to be called if

Accepted Answer

A)  interest rates decrease. 
B)  interest rates increase. 
C)  Progressive Corporation needs additional financing. 
D)  Progressive Corporation's stock price increases dramatically. 
A)  interest rates decrease. 
B)  interest rates increase. 
C)  Progressive Corporation needs additional financing. 
D)  Progressive Corporation's stock price increases dramatically.

Question 18

Bonds generally have a maturity date while preferred stocks do not.

Accepted Answer

A) True 
 B)False

Question 19

Convertible bonds are debt securities that can be converted into a firm's stock at a prespecified price.

Accepted Answer

A) True 
 B)False

Question 20

When the intrinsic value of an asset exceeds the market value,

Accepted Answer

A)  the asset is undervalued to the investor. 
B)  the asset is overvalued to the investor. 
C)  liquidation value must be higher than book value. 
D)  Market value and intrinsic value are always the same; therefore, this could not happen. 
A)  the asset is undervalued to the investor. 
B)  the asset is overvalued to the investor. 
C)  liquidation value must be higher than book value. 
D)  Market value and intrinsic value are always the same; therefore, this could not happen.

A bond is a long-term promissory note issued by the firm.

The current yield is greater than the coupon rate for a bond selling above par value.

How does the bond rating affect an investor's required rate of return? What factors affect a bond's rating?

A bond's yield to maturity depends upon all of the following EXCEPT

As market rates of interest rise,investors move their funds into bonds,thus increasing their price and lowering their yield.

In an efficient market,two investors may agree on the amount and timing of a bond's expected cash flows and also on the bond's risk level,as measured by its debt rating,and still determine two different values for the bond.

Which of the following statements is true regarding convertible bonds?

When using the pv (present value)function in Excel to calculate bond values,the bond's coupon rate is entered as the Rate variable.

What is the value of a bond that matures in 17 years,makes an annual coupon payment of $50,and has a par value of $1,000? Assume a required rate of return of 5.90%.

A bond selling at a discount will have a built-in capital gain if the bond is held to maturity.

Master Craft Control Inc.has bonds that mature in 6 1/2 years with a par value of $1,000.They pay a coupon rate of 9% with semiannual payments.If the required rate of return on these bonds is 11% what is the bond's value?

Which of the following bond provisions will make a bond more desirable to investors,other things being equal?

A $1,000 par value 14-year bond with a 10 percent coupon rate recently sold for $965.The yield to maturity is

Charlie Corporation has two bonds outstanding.Both bonds mature in 10 years,have a face value of $1,000,and have a yield to maturity of 8%.One bond is a zero coupon bond and the other bond has a coupon rate of 8%.Which of the following statements is true?

Pentrax Corp.issued 25 year bonds in 2002 with a coupon rate of 6% and a face value of $1,000.The bonds sold for face value when issued.Since 2002,interest rates have increased,so the going rate on similar bonds is now 9%.Which of the following statements is MOST accurate?

A zero coupon bond is selling for $476.The bond has a face value of $1,000 and matures in 8 years.Your friend asks you if he should buy the bond.He tells you his required return is 9 percent.Would you recommend he buy the bond or not? Explain your answer.

Progressive Corporation issued callable bonds.The bonds are most likely to be called if

Bonds generally have a maturity date while preferred stocks do not.

Convertible bonds are debt securities that can be converted into a firm's stock at a prespecified price.

When the intrinsic value of an asset exceeds the market value,

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

International Business Finance

Cash,receivables,and Inventory Management

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Exam 7: The Valuation and Characteristics of Bonds

A bond is a long-term promissory note issued by the firm.

The current yield is greater than the coupon rate for a bond selling above par value.

How does the bond rating affect an investor's required rate of return? What factors affect a bond's rating?

A bond's yield to maturity depends upon all of the following EXCEPT

As market rates of interest rise,investors move their funds into bonds,thus increasing their price and lowering their yield.

In an efficient market,two investors may agree on the amount and timing of a bond's expected cash flows and also on the bond's risk level,as measured by its debt rating,and still determine two different values for the bond.

Which of the following statements is true regarding convertible bonds?

When using the pv (present value)function in Excel to calculate bond values,the bond's coupon rate is entered as the Rate variable.

What is the value of a bond that matures in 17 years,makes an annual coupon payment of $50,and has a par value of $1,000? Assume a required rate of return of 5.90%.

A bond selling at a discount will have a built-in capital gain if the bond is held to maturity.

Master Craft Control Inc.has bonds that mature in 6 1/2 years with a par value of $1,000.They pay a coupon rate of 9% with semiannual payments.If the required rate of return on these bonds is 11% what is the bond's value?

Which of the following bond provisions will make a bond more desirable to investors,other things being equal?

A $1,000 par value 14-year bond with a 10 percent coupon rate recently sold for $965.The yield to maturity is

Charlie Corporation has two bonds outstanding.Both bonds mature in 10 years,have a face value of $1,000,and have a yield to maturity of 8%.One bond is a zero coupon bond and the other bond has a coupon rate of 8%.Which of the following statements is true?

Pentrax Corp.issued 25 year bonds in 2002 with a coupon rate of 6% and a face value of $1,000.The bonds sold for face value when issued.Since 2002,interest rates have increased,so the going rate on similar bonds is now 9%.Which of the following statements is MOST accurate?

A zero coupon bond is selling for $476.The bond has a face value of $1,000 and matures in 8 years.Your friend asks you if he should buy the bond.He tells you his required return is 9 percent.Would you recommend he buy the bond or not? Explain your answer.

Progressive Corporation issued callable bonds.The bonds are most likely to be called if

Bonds generally have a maturity date while preferred stocks do not.

Convertible bonds are debt securities that can be converted into a firm's stock at a prespecified price.

When the intrinsic value of an asset exceeds the market value,

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

International Business Finance

Cash,receivables,and Inventory Management

Filters