Exam 7: The Valuation and Characteristics of Bonds

Bonds generally have a maturity date while preferred stocks do not.

If a bond's rating declines,the interest rate demanded by investors,called the required return,also decreases.

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 less risky the bond (or the higher the bond rating)the lower will be the yield to maturity on the bond.

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

A $1,000 par value 14-year bond with a 10 percent coupon rate recently sold for $965.The yield to maturity is

Which of the following bond provisions will make a bond more desirable to investors,other things being equal?

A bond with a coupon rate of 8% will also have a yield to maturity of 8%.

As interest rates,and consequently investors' required rates of return,change over time the ________ of outstanding bonds will change as a result.

A bond's yield to maturity depends upon all of the following EXCEPT

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

Subordinated debentures are more risky than unsubordinated debentures because the claims of subordinated debenture holders are less likely to be honored in the event of liquidation.

A zero coupon bond is selling for $476.The bond has a face value of $1,000 and matures in 8 years.Your friend asks you if he should buy the bond.He tells you his required return is 9 percent.Would you recommend he buy the bond or not? Explain your answer.

Both investor A and investor B are considering the purchase of Corporation FJR bonds.The bonds are selling at a price of $1,100 each.Investor A decides to buy the bonds and Investor B does not buy the bonds.

A company with a bond rating of BBB is more likely to have which of the following qualities compared to a company with a bond rating of B?

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

A bond with a par value of $1,000 is listed in the Wall Street Journal at a price of 100.50.This bond is selling for $1,005.

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?

The yield to maturity on a bond

In an efficient market,two investors may agree on the amount and timing of a bond's expected cash flows and also on the bond's risk level,as measured by its debt rating,and still determine two different values for the bond.