Exam 6: Bonds Debt Characteristics and Valuation

A bond with a $100 annual interest payment and $1,000 face value with five years to maturity (not expected to default) would sell for a premium if interest rates were below 9% and would sell for a discount if interest rates were greater than 11%. 

General obligation bonds are backed by the:

Which of the following is generally considered an advantage of term loans over corporate bonds?

JRJ Corporation issued 10-year bonds at a price of $1,000. These bonds pay $60 interest every six months. Their price has remained the same since they were issued; that is, the bonds still sell for $1,000. Due to additional financing needs, the firm wishes to issue new bonds that would have a maturity of 10 years and a par value of $1,000 and pay $40 interest every six months. If both bonds have the same yield, how many new bonds must JRJ issue to raise additional capital of $2 million? Fractions of bonds cannot be issued. (Round the number of bonds to the nearest whole number.)

Which of the following types of investors would be most likely to purchase zero coupon bonds?

Omega Software Corporation's bond with a face value of $1,000 is currently selling at a premium in the financial markets. If the bond's yield to maturity is 11.5 percent, then the bond's:

Floating-rate bonds pay interest based on an inflation index, such as the consumer price index (CPI). 

A(n) _____ certificate of deposit (CD) can be traded to other investors prior to maturity. 

A bond's value will increase when interest rates increase. 

Zero coupon bonds are offered at substantial discounts below their par values. 

Which of the following ratings by Standard & Poor's (S&P) is given to speculative bonds with extremely high credit risk?

If there are two bonds with a simple interest rate yield of 9 percent, but one bond is compounded quarterly while the other bond is compounded monthly, the bond with quarterly compounding will have a higher effective annual yield. 

The ratings of a firm's bonds are based on:

The terms and conditions of a bond are set forth in its:

Which of the following is true of a traditional certificate of deposit (CD)?

Which of the following statements is correct?

There is an inverse relationship between bond ratings and the required return on a bond. The required return is lowest for AAA rated bonds, and required returns increase as the ratings get lower (worse). 

A sinking fund call on a bond:

When the market value of debt is the same as its par value, it is:

GP&L sold $1,000,000 of 12 percent, 30-year, semiannual payment bonds with a face value of $1,000, 15 years ago. The bonds are not callable, but they do have a sinking fund, which requires GP&L to redeem 5 percent of the original face value of the issue each year ($50,000), beginning in Year 11. To date, 25 percent of the issue has been retired. The company can either call bonds at par for sinking fund purposes or purchase bonds in the open market, spending sufficient money to redeem 5 percent of the original face value each year. If the current market yield of the bonds is 14 percent, what is the least amount of money GP&L must put in to satisfy the sinking fund provision for the next redemption?