Question 1

A mortgage bond is secured by a lien on real property.

Accepted Answer

A) True 
 B)False

Question 2

If a bond sells for its par value,the coupon interest rate and yield to maturity are equal.

Accepted Answer

A) True 
 B)False

Question 3

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 4

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

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements concerning bonds and risk is true?

Accepted Answer

A) Because the interest payments and maturing value are known,the only risk associated with investing in bonds is default risk. 
B) Zero coupon bonds are always more risky than bonds with high coupon rates because of the time value of money. 
C) Bonds are generally less risky than common stock because of the preference for debt over equity in the event of bankruptcy and liquidation. 
D) B-rated bonds are above average for risk,i.e.,less risky than the average bond. 
A) Because the interest payments and maturing value are known,the only risk associated with investing in bonds is default risk. 
B) Zero coupon bonds are always more risky than bonds with high coupon rates because of the time value of money. 
C) Bonds are generally less risky than common stock because of the preference for debt over equity in the event of bankruptcy and liquidation. 
D) B-rated bonds are above average for risk,i.e.,less risky than the average bond.

Question 6

Pentrax Corp issued 25 year bonds in 2002 with a coupon rate of 6% and a face value of $1,000.The bonds sold for face value when issued.Since 2002,interest rates have increased,so the going rate on similar bonds is now 9%.Which of the following statements is most accurate?

Accepted Answer

A) An investor who purchased an Pentrax bond in 2002 and plans to keep the bond until it matures expects to earn 6% per year over the life of the bond. 
B) Pentrax Corp must now pay bondholders interest payments of $90 per year due to the increase in interest rates. 
C) An investor who purchased an Pentrax bond in 2002 and plans to keep the bond until it matures expects an increase in return from 6% per year to 9% per year. 
D) The price of an Pentrax Corp bond should be higher than $1,000 due to the increase in rates. 
A) An investor who purchased an Pentrax bond in 2002 and plans to keep the bond until it matures expects to earn 6% per year over the life of the bond. 
B) Pentrax Corp must now pay bondholders interest payments of $90 per year due to the increase in interest rates. 
C) An investor who purchased an Pentrax bond in 2002 and plans to keep the bond until it matures expects an increase in return from 6% per year to 9% per year. 
D) The price of an Pentrax Corp bond should be higher than $1,000 due to the increase in rates.

Question 7

Bond prices are inversely related to market interest rates.

Accepted Answer

A) True 
 B)False

Question 8

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 9

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 10

In the case of insolvency,the claims of debt are honored prior to those of common stock and after those of preferred stock.

Accepted Answer

A) True 
 B)False

Question 11

FYI bonds have a par value of $1,000.The bonds pay $40 in interest every six months and will mature in 10 years. 
a.Calculate the price if the yield to maturity on the bonds is 7,8,and 9 percent,respectively. 
b.Explain the impact on price if the required rate of return decreases. 
c.Compute the coupon rate on the bonds.How does the relationship between the coupon rate and the yield to maturity determine how a bond's price will compare to it par value?

Accepted Answer

a.7% YTM price = $1,071.06 8% YTM price

Question 12

Calculate the value of a bond that is expected to mature in 18 years with a $1,000 face value.The coupon rate is 4%,and the required rate of return is 8%.Interest is paid annually.

Accepted Answer

The answer of Calculate the value of a bond that...

Question 13

A bond is a long-term promissory note issued by the firm.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements concerning junk bonds is MOST correct?

Accepted Answer

A) A rational investor will always prefer a AAA-rated bond to a junk bond. 
B) Junk bonds have higher interest rates than AAA-rated bonds because of the higher risk. 
C) Junk bonds may also be called low-yielding securities. 
D) Junk bonds are priced higher than AAA-rated bonds because junk bonds are more risky. 
A) A rational investor will always prefer a AAA-rated bond to a junk bond. 
B) Junk bonds have higher interest rates than AAA-rated bonds because of the higher risk. 
C) Junk bonds may also be called low-yielding securities. 
D) Junk bonds are priced higher than AAA-rated bonds because junk bonds are more risky.

Question 15

The correct relationship for a premium bond is

Accepted Answer

A) current yield > yield to maturity > coupon rate. 
B) current yield > coupon rate > yield to maturity. 
C) coupon rate > yield to maturity > current yield. 
D) coupon rate > current yield > yield to maturity. 
A) current yield > yield to maturity > coupon rate. 
B) current yield > coupon rate > yield to maturity. 
C) coupon rate > yield to maturity > current yield. 
D) coupon rate > current yield > yield to maturity.

Question 16

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 17

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

Accepted Answer

A) True 
 B)False

Question 18

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?

Accepted Answer

A) the debenture 
B) the mortgage bond 
C) the subordinated debenture 
D) All of the above types of bonds would sell for the same price. 
A) the debenture 
B) the mortgage bond 
C) the subordinated debenture 
D) All of the above types of bonds would sell for the same price.

Question 19

Bond A has a current yield of 6% and Bond B has a current yield of 8%.If the market price of both bonds is the same,then the yield to maturity on Bond B must be higher than the yield to maturity on Bond A.

Accepted Answer

A) True 
 B)False

Question 20

In the present value bond valuation model,risk is generally incorporated into the

Accepted Answer

A) maturity amount. 
B) timing of cash flows (assuming more risky cash flows are received early). 
C) discount rate or required return. 
D) cash flows (making some smaller if they are more risky). 
A) maturity amount. 
B) timing of cash flows (assuming more risky cash flows are received early). 
C) discount rate or required return. 
D) cash flows (making some smaller if they are more risky).

A mortgage bond is secured by a lien on real property.

If a bond sells for its par value,the coupon interest rate and yield to maturity are equal.

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.

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

Which of the following statements concerning bonds and risk is true?

Pentrax Corp issued 25 year bonds in 2002 with a coupon rate of 6% and a face value of $1,000.The bonds sold for face value when issued.Since 2002,interest rates have increased,so the going rate on similar bonds is now 9%.Which of the following statements is most accurate?

Bond prices are inversely related to market interest rates.

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.

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

In the case of insolvency,the claims of debt are honored prior to those of common stock and after those of preferred stock.

Calculate the value of a bond that is expected to mature in 18 years with a $1,000 face value.The coupon rate is 4%,and the required rate of return is 8%.Interest is paid annually.

A bond is a long-term promissory note issued by the firm.

Which of the following statements concerning junk bonds is MOST correct?

The correct relationship for a premium bond is

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

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

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?

Bond A has a current yield of 6% and Bond B has a current yield of 8%.If the market price of both bonds is the same,then the yield to maturity on Bond B must be higher than the yield to maturity on Bond A.

In the present value bond valuation model,risk is generally incorporated into the

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

A mortgage bond is secured by a lien on real property.

If a bond sells for its par value,the coupon interest rate and yield to maturity are equal.

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.

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

Which of the following statements concerning bonds and risk is true?

Pentrax Corp issued 25 year bonds in 2002 with a coupon rate of 6% and a face value of $1,000.The bonds sold for face value when issued.Since 2002,interest rates have increased,so the going rate on similar bonds is now 9%.Which of the following statements is most accurate?

Bond prices are inversely related to market interest rates.

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.

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

In the case of insolvency,the claims of debt are honored prior to those of common stock and after those of preferred stock.

Calculate the value of a bond that is expected to mature in 18 years with a $1,000 face value.The coupon rate is 4%,and the required rate of return is 8%.Interest is paid annually.

A bond is a long-term promissory note issued by the firm.

Which of the following statements concerning junk bonds is MOST correct?

The correct relationship for a premium bond is

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

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

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?

Bond A has a current yield of 6% and Bond B has a current yield of 8%.If the market price of both bonds is the same,then the yield to maturity on Bond B must be higher than the yield to maturity on Bond A.

In the present value bond valuation model,risk is generally incorporated into the

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