Exam 8: Interest Rates and Bond Valuation

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Otto Enterprises has a 15-year bond issue outstanding that pays a 9% coupon. The bond is currently priced at $894.60 and has a par value of $1,000. Interest is paid semiannually. What is the yield to maturity?

(Multiple Choice)

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Question 41

The annual coupon of a bond divided by its face value is called the bond's:

(Multiple Choice)

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Question 42

The specified date on which the principal amount of a bond is repaid is called the bond's:

(Multiple Choice)

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Question 43

A bond with a 6% coupon that pays interest semi-annually and is priced at par will have a market price of _ and interest payments in the amount of _ each.

(Multiple Choice)

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(83)

Question 44

Emmett Corporation has issued a $1,000 face value zero-coupon bond. Which of the following values is closest to the correct price for the bond if the appropriate discount rate is 4% and the bond matures in 8 years?

(Multiple Choice)

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Question 45

Part of the Rock,Inc. has a 6% coupon bond that matures in 11 years. The bond pays interest semiannually. What is the market price of a $1,000 face value bond if the yield to maturity is 12.9%?

(Multiple Choice)

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Question 46

The value of a 25 year zero-coupon bond when the market required rate of return is 10% (semiannual) is ____.

(Multiple Choice)

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Question 47

A 12-year,5% coupon bond pays interest annually. The bond has a face value of $1,000. What is the change in the price of this bond if the market yield rises to 6% from the current yield of 4.5%?

(Multiple Choice)

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Question 48

The yield to maturity is:

(Multiple Choice)

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Question 49

Calculate the YTM on a bond priced at $1,036 which has 2 years to maturity,a 10% annual coupon rate,and a return of $1,000 at maturity.

(Short Answer)

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Question 50

Which of the following amounts is closest to the value of a bond that pays $55 semiannually and has an effective semiannual interest rate of 5%? The face value is $1,000 and the bond matures in 3 years. There are exactly six months before the first interest payment.

(Multiple Choice)

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Question 51

A bond that pays interest annually yields a 7.25% rate of return. The inflation rate for the same period is 3.5%. What is the real rate of return on this bond?

(Multiple Choice)

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Question 52

Your firm offers a 10-year,zero coupon bond. The yield to maturity is 8.8%. What is the current market price of a $1,000 face value bond?

(Multiple Choice)

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(77)

Question 53

Chocolate and Rum,Inc. offers a 7% coupon bond with semiannual payments and a yield to maturity of 7.73%. The bonds mature in 9 years. What is the market price of a $1,000 face value bond?

(Multiple Choice)

4.9/5

(71)

Question 54

Define what is meant by interest rate risk. Assume you are the manager of a $100 million portfolio of corporate bonds and you believe interest rates will fall. What adjustments should you make to your portfolio based on your beliefs?

(Essay)

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(78)

Question 55

The _____ premium is that portion of a nominal interest rate or bond yield that represents compensation for expected future overall price appreciation.

(Multiple Choice)

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(95)

Question 56

An asset characterized by cash flows that increase at a constant rate forever is called a:

(Multiple Choice)

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Question 57

The rate of return required by investors in the market for owning a bond is called the:

(Multiple Choice)

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Question 58

The Fisher formula is expressed as _____ where R is the nominal rate,r is the real rate,and h is the inflation rate.

(Multiple Choice)

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Question 59

A Corporate bond has an 8% coupon and pays interest annually. The face value is $1,000 and the current market price is $1,020.50. The bond matures in 20 years. What is the yield to maturity?

(Multiple Choice)

4.8/5

(82)

Question 60

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Exam 8: Interest Rates and Bond Valuation

Otto Enterprises has a 15-year bond issue outstanding that pays a 9% coupon. The bond is currently priced at $894.60 and has a par value of $1,000. Interest is paid semiannually. What is the yield to maturity?

The annual coupon of a bond divided by its face value is called the bond's:

The specified date on which the principal amount of a bond is repaid is called the bond's:

A bond with a 6% coupon that pays interest semi-annually and is priced at par will have a market price of _____ and interest payments in the amount of _____ each.

Emmett Corporation has issued a $1,000 face value zero-coupon bond. Which of the following values is closest to the correct price for the bond if the appropriate discount rate is 4% and the bond matures in 8 years?

Part of the Rock,Inc. has a 6% coupon bond that matures in 11 years. The bond pays interest semiannually. What is the market price of a $1,000 face value bond if the yield to maturity is 12.9%?

The value of a 25 year zero-coupon bond when the market required rate of return is 10% (semiannual) is ____.

A 12-year,5% coupon bond pays interest annually. The bond has a face value of $1,000. What is the change in the price of this bond if the market yield rises to 6% from the current yield of 4.5%?

The yield to maturity is:

Calculate the YTM on a bond priced at $1,036 which has 2 years to maturity,a 10% annual coupon rate,and a return of $1,000 at maturity.

Which of the following amounts is closest to the value of a bond that pays $55 semiannually and has an effective semiannual interest rate of 5%? The face value is $1,000 and the bond matures in 3 years. There are exactly six months before the first interest payment.

A bond that pays interest annually yields a 7.25% rate of return. The inflation rate for the same period is 3.5%. What is the real rate of return on this bond?

Your firm offers a 10-year,zero coupon bond. The yield to maturity is 8.8%. What is the current market price of a $1,000 face value bond?

Chocolate and Rum,Inc. offers a 7% coupon bond with semiannual payments and a yield to maturity of 7.73%. The bonds mature in 9 years. What is the market price of a $1,000 face value bond?

Define what is meant by interest rate risk. Assume you are the manager of a $100 million portfolio of corporate bonds and you believe interest rates will fall. What adjustments should you make to your portfolio based on your beliefs?

The _____ premium is that portion of a nominal interest rate or bond yield that represents compensation for expected future overall price appreciation.

An asset characterized by cash flows that increase at a constant rate forever is called a:

The rate of return required by investors in the market for owning a bond is called the:

The Fisher formula is expressed as _____ where R is the nominal rate,r is the real rate,and h is the inflation rate.

A Corporate bond has an 8% coupon and pays interest annually. The face value is $1,000 and the current market price is $1,020.50. The bond matures in 20 years. What is the yield to maturity?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Stock Valuation

Risk and Return: Lessons From Market History

Return and Risk: the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: The Arbitrage Pricing Theory

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers, Acquisitions, and Divestitures

Financial Distress

International Corporate Finance

Filters

A bond with a 6% coupon that pays interest semi-annually and is priced at par will have a market price of _ and interest payments in the amount of _ each.