Question 1

In the case of insolvency,the claims of debt are honored prior to those of common stock and after those of preferred stock.

Accepted Answer

A) True 
 B)False

Question 2

The value of a bond is equal to the present value of the bond's interest payments plus the present value of the bond's maturity value,all discounted at the bond's coupon rate.

Accepted Answer

A) True 
 B)False

Question 3

While checking the Wall Street Journal bond listings you notice that the price of an AT&T bond is the same as the price of a K-Mart bond.Based on this information you know that

Accepted Answer

A)  the bond with the lower coupon rate will have the lower current yield. 
B)  both bonds have the same yield to maturity. 
C)  both bonds will have the same bond rating. 
D)  the bond with the longest time to maturity will have the highest yield to maturity. 
A)  the bond with the lower coupon rate will have the lower current yield. 
B)  both bonds have the same yield to maturity. 
C)  both bonds will have the same bond rating. 
D)  the bond with the longest time to maturity will have the highest yield to maturity.

Question 4

Liquidation value is of primary importance to investors because it represents the true amount of cash that an investor is likely to receive.

Accepted Answer

A) True 
 B)False

Question 5

If the market price of a bond decreases,then

Accepted Answer

A)  the yield to maturity decreases. 
B)  the coupon rate increases. 
C)  the yield to maturity increases. 
D)  the coupon rate decreases. 
A)  the yield to maturity decreases. 
B)  the coupon rate increases. 
C)  the yield to maturity increases. 
D)  the coupon rate decreases.

Question 6

What is the value of a bond that matures in 5 years,has an annual coupon payment of $110,and a par value of $2,000? Assume a required rate of return of 8.69%.

Accepted Answer

A)  $938.50 
B)  $1,876.99 
C)  $1,891.36 
D)  $1,749.83 
A)  $938.50 
B)  $1,876.99 
C)  $1,891.36 
D)  $1,749.83

Question 7

If a bond has a market value that is higher than its par value,then the required return on the bond must be less than the bond's coupon rate.

Accepted Answer

A) True 
 B)False

Question 8

Market efficiency implies which of the following?

Accepted Answer

A)  book value = intrinsic value 
B)  market value = intrinsic value 
C)  book value = market value 
D)  liquidation value = book value 
A)  book value = intrinsic value 
B)  market value = intrinsic value 
C)  book value = market value 
D)  liquidation value = book value

Question 9

The yield to maturity on a bond is the rate of return that equates the present value of the bond's future cash flows with the bond's

Accepted Answer

A)  face value. 
B)  market value. 
C)  liquidation value. 
D)  book value. 
A)  face value. 
B)  market value. 
C)  liquidation value. 
D)  book value.

Question 10

The sum of the present values of an investment's expected future cash flows is known as the investment's intrinsic value.

Accepted Answer

A) True 
 B)False

Question 11

Other things held equal,a bond with a call provision is worth more to investors than a bond without a call provision.

Accepted Answer

A) True 
 B)False

Question 12

If market interest rates decline,

Accepted Answer

A)  short-term bonds will decline in value more than long-term bonds. 
B)  short-term bonds will rise in value more than long-term bonds. 
C)  long-term bonds will decline in value more than short-term bonds. 
D)  long-term bonds will rise in value more than short-term bonds. 
A)  short-term bonds will decline in value more than long-term bonds. 
B)  short-term bonds will rise in value more than long-term bonds. 
C)  long-term bonds will decline in value more than short-term bonds. 
D)  long-term bonds will rise in value more than short-term bonds.

Question 13

Due to a number of lawsuits related to toxic wastes,a major chemical company has recently experienced a market revaluation.The firm has bonds outstanding that were issued 8 years ago at their par value of $1,000.These bonds have 12 years to maturity and a coupon rate of 6 percent,with interest paid semiannually.The required return on these bonds has increased to 14 percent.What is the current value of one of these bonds?

Accepted Answer

Value of Bond = 30 (

Question 14

Bart's Moving Company bonds have a 11% coupon rate.Interest is paid semiannually.The bonds have a par value of $1,000 and will mature 8 years from now.Compute the value of Bart's Moving Company bonds if investors' required rate of return is 9.5%.

Accepted Answer

A)  $1,197.27 
B)  $1,133.05 
C)  $1,098.99 
D)  $1,082.75 
A)  $1,197.27 
B)  $1,133.05 
C)  $1,098.99 
D)  $1,082.75

Question 15

Cabell Corp.bonds pay an annual coupon rate of 10%.If investors' required rate of return is now 12% on these bonds,they will be priced at

Accepted Answer

A)  par value. 
B)  a premium to par value. 
C)  a discount to par value. 
D)  Cannot be determined without knowing the number of years to maturity. 
A)  par value. 
B)  a premium to par value. 
C)  a discount to par value. 
D)  Cannot be determined without knowing the number of years to maturity.

Question 16

What is the value of a bond that has a par value of $1,000,a coupon of $120 (annually),and matures in 10 years? Assume a required rate of return of 7.02%.

Accepted Answer

A)  $1,198.45 
B)  $1,200.78 
C)  $1,284.38 
D)  $1,349.45 
A)  $1,198.45 
B)  $1,200.78 
C)  $1,284.38 
D)  $1,349.45

Question 17

A bond rating of "BB" indicates that the company's financial position is above average and hence the default risk on the bonds is very low.

Accepted Answer

A) True 
 B)False

Question 18

The value of a bond is inversely related to changes in the investor's present required rate of return.

Accepted Answer

A) True 
 B)False

Question 19

If a bond is selling below its face value,then its yield to maturity must be less than the bond's coupon rate.

Accepted Answer

A) True 
 B)False

Question 20

Finance theory suggests that the current market value of a bond is based upon which of the following?

Accepted Answer

A)  the future value of interest paid on a bond 
B)  the sum total of principal and interest paid on a bond 
C)  the sum of the present value of the bond's interest payments and the present value of the principal 
D)  the present value of a bond's par value plus the future value of the bond's present value 
A)  the future value of interest paid on a bond 
B)  the sum total of principal and interest paid on a bond 
C)  the sum of the present value of the bond's interest payments and the present value of the principal 
D)  the present value of a bond's par value plus the future value of the bond's present value

In the case of insolvency,the claims of debt are honored prior to those of common stock and after those of preferred stock.

The value of a bond is equal to the present value of the bond's interest payments plus the present value of the bond's maturity value,all discounted at the bond's coupon rate.

While checking the Wall Street Journal bond listings you notice that the price of an AT&T bond is the same as the price of a K-Mart bond.Based on this information you know that

Liquidation value is of primary importance to investors because it represents the true amount of cash that an investor is likely to receive.

If the market price of a bond decreases,then

What is the value of a bond that matures in 5 years,has an annual coupon payment of $110,and a par value of $2,000? Assume a required rate of return of 8.69%.

If a bond has a market value that is higher than its par value,then the required return on the bond must be less than the bond's coupon rate.

Market efficiency implies which of the following?

The yield to maturity on a bond is the rate of return that equates the present value of the bond's future cash flows with the bond's

The sum of the present values of an investment's expected future cash flows is known as the investment's intrinsic value.

Other things held equal,a bond with a call provision is worth more to investors than a bond without a call provision.

If market interest rates decline,

Bart's Moving Company bonds have a 11% coupon rate.Interest is paid semiannually.The bonds have a par value of $1,000 and will mature 8 years from now.Compute the value of Bart's Moving Company bonds if investors' required rate of return is 9.5%.

Cabell Corp.bonds pay an annual coupon rate of 10%.If investors' required rate of return is now 12% on these bonds,they will be priced at

What is the value of a bond that has a par value of $1,000,a coupon of $120 (annually),and matures in 10 years? Assume a required rate of return of 7.02%.

A bond rating of "BB" indicates that the company's financial position is above average and hence the default risk on the bonds is very low.

The value of a bond is inversely related to changes in the investor's present required rate of return.

If a bond is selling below its face value,then its yield to maturity must be less than the bond's coupon rate.

Finance theory suggests that the current market value of a bond is based upon which of the following?

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

Exam 7: The Valuation and Characteristics of Bonds

In the case of insolvency,the claims of debt are honored prior to those of common stock and after those of preferred stock.

The value of a bond is equal to the present value of the bond's interest payments plus the present value of the bond's maturity value,all discounted at the bond's coupon rate.

While checking the Wall Street Journal bond listings you notice that the price of an AT&T bond is the same as the price of a K-Mart bond.Based on this information you know that

Liquidation value is of primary importance to investors because it represents the true amount of cash that an investor is likely to receive.

If the market price of a bond decreases,then

What is the value of a bond that matures in 5 years,has an annual coupon payment of $110,and a par value of $2,000? Assume a required rate of return of 8.69%.

If a bond has a market value that is higher than its par value,then the required return on the bond must be less than the bond's coupon rate.

Market efficiency implies which of the following?

The yield to maturity on a bond is the rate of return that equates the present value of the bond's future cash flows with the bond's

The sum of the present values of an investment's expected future cash flows is known as the investment's intrinsic value.

Other things held equal,a bond with a call provision is worth more to investors than a bond without a call provision.

If market interest rates decline,

Bart's Moving Company bonds have a 11% coupon rate.Interest is paid semiannually.The bonds have a par value of $1,000 and will mature 8 years from now.Compute the value of Bart's Moving Company bonds if investors' required rate of return is 9.5%.

Cabell Corp.bonds pay an annual coupon rate of 10%.If investors' required rate of return is now 12% on these bonds,they will be priced at

What is the value of a bond that has a par value of $1,000,a coupon of $120 (annually),and matures in 10 years? Assume a required rate of return of 7.02%.

A bond rating of "BB" indicates that the company's financial position is above average and hence the default risk on the bonds is very low.

The value of a bond is inversely related to changes in the investor's present required rate of return.

If a bond is selling below its face value,then its yield to maturity must be less than the bond's coupon rate.

Finance theory suggests that the current market value of a bond is based upon which of the following?

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