Question 1

Convertible bonds decrease in value whenever the price of the company's stock increases.

Accepted Answer

A) True 
 B)False

Question 2

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?

Accepted Answer

A) 2.4% 
B) 5.7% 
C) 7.6% 
D) 9.5% 
A) 2.4% 
B) 5.7% 
C) 7.6% 
D) 9.5%

Question 3

Visionary TV Corporation bonds are currently priced at $1,088.They have a par value of $1,000 and 12 years to maturity.They pay an annual coupon rate of 6%.What is the yield to maturity on this bond?

Accepted Answer

A) 6.7% 
B) 6.1% 
C) 5.4% 
D) 5.0% 
A) 6.7% 
B) 6.1% 
C) 5.4% 
D) 5.0%

Question 4

A bond rating of "BB" indicates that the company's financial position is above average and hence the default risk on the bonds is very low.

Accepted Answer

A) True 
 B)False

Question 5

Debentures are expected to have a lower yield than secured bonds because the debentures are more risky and therefore less desirable.

Accepted Answer

A) True 
 B)False

Question 6

While checking the Wall Street Journal bond listings you notice that the price of an AT&T bond is the same as the price of a K-Mart bond.Based on this information you know that

Accepted Answer

A) the bond with the lower coupon rate will have the lower current yield. 
B) both bonds have the same yield to maturity. 
C) both bonds will have the same bond rating. 
D) the bond with the longest time to maturity will have the highest yield to maturity. 
A) the bond with the lower coupon rate will have the lower current yield. 
B) both bonds have the same yield to maturity. 
C) both bonds will have the same bond rating. 
D) the bond with the longest time to maturity will have the highest yield to maturity.

Question 7

A firm's bond rating would be favorably affected if they have a low use of financial leverage (debt).

Accepted Answer

A) True 
 B)False

Question 8

Junk bonds typically have an interest rate of between 3 and 5 percent more than AAA-rated long-term debt.

Accepted Answer

A) True 
 B)False

Question 9

Facade Securities has an issue of $1,000 par value bonds with 18 years remaining to maturity.The bonds pay 7.7% interest on a semiannual basis.The current market price of the bonds is $1,175.What is the yield-to-maturity of the bonds?

Accepted Answer

A) 6.09% 
B) 6.87% 
C) 7.24% 
D) 8.38% 
A) 6.09% 
B) 6.87% 
C) 7.24% 
D) 8.38%

Question 10

Which type of value is shown on the firm's balance sheet?

Accepted Answer

A) book value 
B) liquidation value 
C) market value 
D) intrinsic value 
A) book value 
B) liquidation value 
C) market value 
D) intrinsic value

Question 11

Fred and Ethel are both considering buying a corporate bond with a coupon rate of 8%,a face value of $1,000,and a maturity date of January 1,2025.Which of the following statements is MOST correct?

Accepted Answer

A) Because both Fred and Ethel will receive the same cash flows if they each buy a bond,they both must assign the same value to the bond. 
B) If Fred decides to buy the bond,then Ethel will also decide to buy the bond,if markets are efficient. 
C) Fred and Ethel will only buy the bonds if the bonds are rated BBB or above. 
D) Fred may determine a different value for a bond than Ethel because each investor may have a different level of risk aversion,and hence a different required return. 
A) Because both Fred and Ethel will receive the same cash flows if they each buy a bond,they both must assign the same value to the bond. 
B) If Fred decides to buy the bond,then Ethel will also decide to buy the bond,if markets are efficient. 
C) Fred and Ethel will only buy the bonds if the bonds are rated BBB or above. 
D) Fred may determine a different value for a bond than Ethel because each investor may have a different level of risk aversion,and hence a different required return.

Question 12

Liquidation value is of primary importance to investors because it represents the true amount of cash that an investor is likely to receive.

Accepted Answer

A) True 
 B)False

Question 13

A corporate bond has a coupon rate of 9%,a face value of $1,000,and matures in 15 years.Which of the following statements is MOST correct?

Accepted Answer

A) An investor with a required return of 10% will value the bond at more than $1,000. 
B) An investor who buys the bond for $900 and holds the bond until maturity will have a capital loss. 
C) An investor who buys the bond for $900 will have a yield to maturity on the bond greater than 9%. 
D) If the bond's market price is $900,then the annual interest payments on the bond will be $81. 
A) An investor with a required return of 10% will value the bond at more than $1,000. 
B) An investor who buys the bond for $900 and holds the bond until maturity will have a capital loss. 
C) An investor who buys the bond for $900 will have a yield to maturity on the bond greater than 9%. 
D) If the bond's market price is $900,then the annual interest payments on the bond will be $81.

Question 14

If you are willing to pay $1,077 for a 15-year $1,000 par value bond that pays 9 percent interest semiannually,what is your expected rate of return?

Accepted Answer

Yield to M

Question 15

The Wall Street Journal bond quotes indicate that the net close for a bond with a $1,000 par value is 100¾.The closing price for that bond was $100.75.

Accepted Answer

A) True 
 B)False

Question 16

The value of a bond is equal to the present value of the bond's interest payments plus the present value of the bond's maturity value,all discounted at the bond's coupon rate.

Accepted Answer

A) True 
 B)False

Question 17

Other things held equal,a bond with a call provision is worth more to investors than a bond without a call provision.

Accepted Answer

A) True 
 B)False

Question 18

Progressive Corporation issued callable bonds.The bonds are most likely to be called if

Accepted Answer

A) interest rates decrease. 
B) interest rates increase. 
C) Shafer Corporation needs additional financing. 
D) Shafer Corporation's stock price increases dramatically. 
A) interest rates decrease. 
B) interest rates increase. 
C) Shafer Corporation needs additional financing. 
D) Shafer Corporation's stock price increases dramatically.

Question 19

Which of the following is FALSE concerning bonds?

Accepted Answer

A) The indenture spells out the obligations of the bond issuer. 
B) Mortgage bonds are secured by assets such as real estate. 
C) Debentures are secured by specific assets other than real estate. 
D) Subordinated debentures are riskier than unsubordinated debentures. 
A) The indenture spells out the obligations of the bond issuer. 
B) Mortgage bonds are secured by assets such as real estate. 
C) Debentures are secured by specific assets other than real estate. 
D) Subordinated debentures are riskier than unsubordinated debentures.

Question 20

If the demand for a new bond issue increases,it is likely that the coupon rate will be adjusted upward by the issuing company.

Accepted Answer

A) True 
 B)False

Convertible bonds decrease in value whenever the price of the company's stock increases.

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?

Visionary TV Corporation bonds are currently priced at $1,088.They have a par value of $1,000 and 12 years to maturity.They pay an annual coupon rate of 6%.What is the yield to maturity on this bond?

A bond rating of "BB" indicates that the company's financial position is above average and hence the default risk on the bonds is very low.

Debentures are expected to have a lower yield than secured bonds because the debentures are more risky and therefore less desirable.

While checking the Wall Street Journal bond listings you notice that the price of an AT&T bond is the same as the price of a K-Mart bond.Based on this information you know that

A firm's bond rating would be favorably affected if they have a low use of financial leverage (debt).

Junk bonds typically have an interest rate of between 3 and 5 percent more than AAA-rated long-term debt.

Facade Securities has an issue of $1,000 par value bonds with 18 years remaining to maturity.The bonds pay 7.7% interest on a semiannual basis.The current market price of the bonds is $1,175.What is the yield-to-maturity of the bonds?

Which type of value is shown on the firm's balance sheet?

Fred and Ethel are both considering buying a corporate bond with a coupon rate of 8%,a face value of $1,000,and a maturity date of January 1,2025.Which of the following statements is MOST correct?

Liquidation value is of primary importance to investors because it represents the true amount of cash that an investor is likely to receive.

A corporate bond has a coupon rate of 9%,a face value of $1,000,and matures in 15 years.Which of the following statements is MOST correct?

If you are willing to pay $1,077 for a 15-year $1,000 par value bond that pays 9 percent interest semiannually,what is your expected rate of return?

The Wall Street Journal bond quotes indicate that the net close for a bond with a $1,000 par value is 100¾.The closing price for that bond was $100.75.

The value of a bond is equal to the present value of the bond's interest payments plus the present value of the bond's maturity value,all discounted at the bond's coupon rate.

Other things held equal,a bond with a call provision is worth more to investors than a bond without a call provision.

Progressive Corporation issued callable bonds.The bonds are most likely to be called if

Which of the following is FALSE concerning bonds?

If the demand for a new bond issue increases,it is likely that the coupon rate will be adjusted upward by the issuing company.

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

Exam 7: The Valuation and Characteristics of Bonds

Convertible bonds decrease in value whenever the price of the company's stock increases.

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?

Visionary TV Corporation bonds are currently priced at $1,088.They have a par value of $1,000 and 12 years to maturity.They pay an annual coupon rate of 6%.What is the yield to maturity on this bond?

A bond rating of "BB" indicates that the company's financial position is above average and hence the default risk on the bonds is very low.

Debentures are expected to have a lower yield than secured bonds because the debentures are more risky and therefore less desirable.

While checking the Wall Street Journal bond listings you notice that the price of an AT&T bond is the same as the price of a K-Mart bond.Based on this information you know that

A firm's bond rating would be favorably affected if they have a low use of financial leverage (debt).

Junk bonds typically have an interest rate of between 3 and 5 percent more than AAA-rated long-term debt.

Facade Securities has an issue of $1,000 par value bonds with 18 years remaining to maturity.The bonds pay 7.7% interest on a semiannual basis.The current market price of the bonds is $1,175.What is the yield-to-maturity of the bonds?

Which type of value is shown on the firm's balance sheet?

Fred and Ethel are both considering buying a corporate bond with a coupon rate of 8%,a face value of $1,000,and a maturity date of January 1,2025.Which of the following statements is MOST correct?

Liquidation value is of primary importance to investors because it represents the true amount of cash that an investor is likely to receive.

A corporate bond has a coupon rate of 9%,a face value of $1,000,and matures in 15 years.Which of the following statements is MOST correct?

If you are willing to pay $1,077 for a 15-year $1,000 par value bond that pays 9 percent interest semiannually,what is your expected rate of return?

The Wall Street Journal bond quotes indicate that the net close for a bond with a $1,000 par value is 100¾.The closing price for that bond was $100.75.

The value of a bond is equal to the present value of the bond's interest payments plus the present value of the bond's maturity value,all discounted at the bond's coupon rate.

Other things held equal,a bond with a call provision is worth more to investors than a bond without a call provision.

Progressive Corporation issued callable bonds.The bonds are most likely to be called if

Which of the following is FALSE concerning bonds?

If the demand for a new bond issue increases,it is likely that the coupon rate will be adjusted upward by the issuing company.

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