Question 1

What restrictions are typically included in an indenture of bonds in order to protect the bondholder?

Accepted Answer

The restrictive provisions included in t

Question 2

The yield to maturity on a bond

Accepted Answer

A)  is fixed in the indenture. 
B)  is lower for higher risk bonds. 
C)  is the required rate of return on the bond. 
D)  is generally below the coupon interest rate. 
A)  is fixed in the indenture. 
B)  is lower for higher risk bonds. 
C)  is the required rate of return on the bond. 
D)  is generally below the coupon interest rate.

Question 3

The yield to maturity is the discount rate that equates the present value of the interest and principal payments with the current market price of the bond.

Accepted Answer

A) True 
 B)False

Question 4

In an efficient market,the market value and intrinsic value of a security should be equal.

Accepted Answer

A) True 
 B)False

Question 5

Unlike market value,the intrinsic value of an asset is estimated independently of risk.

Accepted Answer

A) True 
 B)False

Question 6

The present value of the expected future cash flows of an asset represents the asset's

Accepted Answer

A)  liquidation value. 
B)  book value. 
C)  intrinsic value. 
D)  par value. 
A)  liquidation value. 
B)  book value. 
C)  intrinsic value. 
D)  par value.

Question 7

Put the following in order of their claim on assets of a firm,starting with the LAST to have a claim:
A.Subordinated debentures
B.Debentures (unsubordinated)
C.Common Stock
D.Preferred stock

Accepted Answer

A)  C, B, A, D 
B)  C, D, A, B 
C)  B, A, C, D 
D)  D, C, B, A 
E)  D, C, A, B 
A)  C, B, A, D 
B)  C, D, A, B 
C)  B, A, C, D 
D)  D, C, B, A 
E)  D, C, A, B

Question 8

Which of the following will cause the value of a bond to increase,other things held the same?

Accepted Answer

A)  Investors' required rate of return increases. 
B)  The company's debt rating drops from AAA to BBB. 
C)  Interest rates decrease. 
D)  The bond is callable. 
A)  Investors' required rate of return increases. 
B)  The company's debt rating drops from AAA to BBB. 
C)  Interest rates decrease. 
D)  The bond is callable.

Question 9

In general,interest on bonds,like dividends on preferred stock,may be deferred until a later date at the discretion of management,making debt financing more appealing to corporate managers.

Accepted Answer

A) True 
 B)False

Question 10

The expected yield on junk bonds is higher than the yield on AAA-rated bonds because of the higher default risk associated with junk bonds.

Accepted Answer

A) True 
 B)False

Question 11

Debentures are expected to have a lower yield than secured bonds because the debentures are more risky and therefore less desirable.

Accepted Answer

A) True 
 B)False

Question 12

Bonds issued in a country different from the one in which the currency of the bond is denominated are called Eurobonds.

Accepted Answer

A) True 
 B)False

Question 13

You want to invest in bonds.Explain whether or not each provision listed will make the bonds more or less desirable as an investment: call provision,convertible bond provision,subordinated debt.

Accepted Answer

A call provision makes the bonds less de

Question 14

Fred and Ethel are both considering buying a corporate bond with a coupon rate of 8%,a face value of $1,000,and a maturity date of January 1,2025.Which of the following statements is MOST correct?

Accepted Answer

A)  Because both Fred and Ethel will receive the same cash flows if they each buy a bond, they both must assign the same value to the bond. 
B)  If Fred decides to buy the bond, then Ethel will also decide to buy the bond, if markets are efficient. 
C)  Fred and Ethel will only buy the bonds if the bonds are rated BBB or above. 
D)  Fred may determine a different value for a bond than Ethel because each investor may have a different level of risk aversion, and hence a different required return. 
A)  Because both Fred and Ethel will receive the same cash flows if they each buy a bond, they both must assign the same value to the bond. 
B)  If Fred decides to buy the bond, then Ethel will also decide to buy the bond, if markets are efficient. 
C)  Fred and Ethel will only buy the bonds if the bonds are rated BBB or above. 
D)  Fred may determine a different value for a bond than Ethel because each investor may have a different level of risk aversion, and hence a different required return.

Question 15

Other things being equal,investors will value which of the following bonds the highest?

Accepted Answer

A)  callable bonds 
B)  convertible bonds 
C)  bonds that are both callable and convertible 
D)  unsecured, callable bonds 
A)  callable bonds 
B)  convertible bonds 
C)  bonds that are both callable and convertible 
D)  unsecured, callable bonds

Question 16

PR Corporation just issued $1,000 par 20-year bonds.The bonds sold for $936 and pay interest semiannually.Investors require a rate of 7.00% on the bonds.What is the amount of the semiannual interest payment on the bonds?

Accepted Answer

A)  $64.50 
B)  $55.00 
C)  $32.00 
D)  $21.75 
A)  $64.50 
B)  $55.00 
C)  $32.00 
D)  $21.75

Question 17

A company with a AAA bond rating will command a higher interest rate on its bonds than a company with a lesser BBB bond rating.

Accepted Answer

A) True 
 B)False

Question 18

The par value of a corporate bond indicates the payment that the issuer promises to make to the bondholder at maturity.

Accepted Answer

A) True 
 B)False

Question 19

A corporate bond has a coupon rate of 9%,a face value of $1,000,a market price of $850,and the bond matures in 15 years.Therefore,the bond's yield to maturity is

Accepted Answer

A)  9%. 
B)  24%. 
C)  11.1%. 
D)  13.45%. 
A)  9%. 
B)  24%. 
C)  11.1%. 
D)  13.45%.

Question 20

Graystone bonds have a maturity value of $1,000.The bonds carry a coupon rate of 12 percent.Interest is paid semiannually.The bonds will mature in nine years.If the current market price is $976.50,
a.what is the yield to maturity on the bond?
b.what is the current yield on the bond?

Accepted Answer

a.Yield to maturity

What restrictions are typically included in an indenture of bonds in order to protect the bondholder?

The yield to maturity on a bond

The yield to maturity is the discount rate that equates the present value of the interest and principal payments with the current market price of the bond.

In an efficient market,the market value and intrinsic value of a security should be equal.

Unlike market value,the intrinsic value of an asset is estimated independently of risk.

The present value of the expected future cash flows of an asset represents the asset's

Put the following in order of their claim on assets of a firm,starting with the LAST to have a claim: A.Subordinated debentures B.Debentures (unsubordinated) C.Common Stock D.Preferred stock

Which of the following will cause the value of a bond to increase,other things held the same?

In general,interest on bonds,like dividends on preferred stock,may be deferred until a later date at the discretion of management,making debt financing more appealing to corporate managers.

The expected yield on junk bonds is higher than the yield on AAA-rated bonds because of the higher default risk associated with junk bonds.

Debentures are expected to have a lower yield than secured bonds because the debentures are more risky and therefore less desirable.

Bonds issued in a country different from the one in which the currency of the bond is denominated are called Eurobonds.

You want to invest in bonds.Explain whether or not each provision listed will make the bonds more or less desirable as an investment: call provision,convertible bond provision,subordinated debt.

Fred and Ethel are both considering buying a corporate bond with a coupon rate of 8%,a face value of $1,000,and a maturity date of January 1,2025.Which of the following statements is MOST correct?

Other things being equal,investors will value which of the following bonds the highest?

PR Corporation just issued $1,000 par 20-year bonds.The bonds sold for $936 and pay interest semiannually.Investors require a rate of 7.00% on the bonds.What is the amount of the semiannual interest payment on the bonds?

A company with a AAA bond rating will command a higher interest rate on its bonds than a company with a lesser BBB bond rating.

The par value of a corporate bond indicates the payment that the issuer promises to make to the bondholder at maturity.

A corporate bond has a coupon rate of 9%,a face value of $1,000,a market price of $850,and the bond matures in 15 years.Therefore,the bond's yield to maturity is

Graystone bonds have a maturity value of $1,000.The bonds carry a coupon rate of 12 percent.Interest is paid semiannually.The bonds will mature in nine years.If the current market price is $976.50, a.what is the yield to maturity on the bond? b.what is the current yield on the bond?

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

What restrictions are typically included in an indenture of bonds in order to protect the bondholder?

The yield to maturity on a bond

The yield to maturity is the discount rate that equates the present value of the interest and principal payments with the current market price of the bond.

In an efficient market,the market value and intrinsic value of a security should be equal.

Unlike market value,the intrinsic value of an asset is estimated independently of risk.

The present value of the expected future cash flows of an asset represents the asset's

Put the following in order of their claim on assets of a firm,starting with the LAST to have a claim: A.Subordinated debentures B.Debentures (unsubordinated) C.Common Stock D.Preferred stock

Which of the following will cause the value of a bond to increase,other things held the same?

In general,interest on bonds,like dividends on preferred stock,may be deferred until a later date at the discretion of management,making debt financing more appealing to corporate managers.

The expected yield on junk bonds is higher than the yield on AAA-rated bonds because of the higher default risk associated with junk bonds.

Debentures are expected to have a lower yield than secured bonds because the debentures are more risky and therefore less desirable.

Bonds issued in a country different from the one in which the currency of the bond is denominated are called Eurobonds.

You want to invest in bonds.Explain whether or not each provision listed will make the bonds more or less desirable as an investment: call provision,convertible bond provision,subordinated debt.

Fred and Ethel are both considering buying a corporate bond with a coupon rate of 8%,a face value of $1,000,and a maturity date of January 1,2025.Which of the following statements is MOST correct?

Other things being equal,investors will value which of the following bonds the highest?

PR Corporation just issued $1,000 par 20-year bonds.The bonds sold for $936 and pay interest semiannually.Investors require a rate of 7.00% on the bonds.What is the amount of the semiannual interest payment on the bonds?

A company with a AAA bond rating will command a higher interest rate on its bonds than a company with a lesser BBB bond rating.

The par value of a corporate bond indicates the payment that the issuer promises to make to the bondholder at maturity.

A corporate bond has a coupon rate of 9%,a face value of $1,000,a market price of $850,and the bond matures in 15 years.Therefore,the bond's yield to maturity is

Graystone bonds have a maturity value of $1,000.The bonds carry a coupon rate of 12 percent.Interest is paid semiannually.The bonds will mature in nine years.If the current market price is $976.50, a.what is the yield to maturity on the bond? b.what is the current yield on the bond?

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