Exam 7: The Valuation and Characteristics of Bonds

To determine the periodic interest payments that a bond makes,multiply the bond's stated coupon rate by its par value and divide by the number of coupon payments per year.

Restrictive provisions in bond indenture agreements are designed to protect bondholders and lessen the agency problems between bondholders and stockholders.

The current yield for a bond is constant over time because the coupon rate is fixed.

A bond with a $1,000 face value and a 10 percent annual coupon rate matures in 15 years. a.Determine the value of the bond to a friend of yours with a required rate of return of 13%. b.A zero coupon bond with similar risk is selling for $180.The bond has a face value of $1,000 and matures in 15 years.Your friend asks you which bond she should invest in,the zero coupon bond or the bond in part (a).Which bond do you recommend,and why? Assume the market price of the bond in part (a)is $820.

A bond's yield to maturity varies from investor to investor because each investor has his or her own required return.

A Heights Inc.bonds have a coupon rate of 7%,a yield to maturity of 10%,a face value of $1,000,and mature in 10 years.Which of the following statements is MOST correct?

What is the yield to maturity of a bond that pays an 5% coupon rate with annual coupon payments,has a par value of $1,000,matures in 15 years,and is currently selling for $769?

Two investors are considering the purchase of Corporation LMQ bonds.The bonds are selling at their par value of $1,000 with a coupon rate of 9%.Investor A decides to buy the bonds and Investor B does not buy the bonds.

Suppose interest rates have been at historically low levels the past two years.A reasonable strategy for bond investors during this time period would be to

Nunavet Ocean Cruises sold an issue of 12-year $1,000 par bonds to build new ships.The bonds pay 4.85% interest,semiannually.Today's required rate of return is 9.7%.How much should these bonds sell for today? Round off to the nearest $1.

If a corporation were to choose between issuing a debenture,a mortgage bond,or a subordinated debenture,everything else equal (such as coupon rate,maturity,etc.)which would sell for the greatest price?