Question 1

If market interest rates rise

Accepted Answer

A) short-term bonds will decline in value more than long-term bonds. 
B) short-term bonds will rise in value more than long-term bonds. 
C) long-term bonds will decline in value more than short-term bonds. 
D) long-term bonds will rise in value more than short-term bonds. 
A) short-term bonds will decline in value more than long-term bonds. 
B) short-term bonds will rise in value more than long-term bonds. 
C) long-term bonds will decline in value more than short-term bonds. 
D) long-term bonds will rise in value more than short-term bonds.

Question 2

To determine the periodic interest payments that a bond makes,multiply the bond's stated coupon rate by its par value and divide by the number of coupon payments per year.

Accepted Answer

A) True 
 B)False

Question 3

As market rates of interest rise,investors move their funds into bonds,thus increasing their price and lowering their yield.

Accepted Answer

A) True 
 B)False

Question 4

A corporate bond has a coupon rate of 9%,a face value of $1,000,a market price of $850,and the bond matures in 15 years.Therefore,the bond's yield to maturity is

Accepted Answer

A) 9%. 
B) 24%. 
C) 11.1%. 
D) 13.45%. 
A) 9%. 
B) 24%. 
C) 11.1%. 
D) 13.45%.

Question 5

Alice Kitchen's,Inc.bonds have a 10% coupon rate with semiannual coupon payments.They have 12 and 1/2 years to maturity and a par value of $1,000.Compute the value of Alice's bonds if investors' required rate of return is 8%.

Accepted Answer

A) $1,156.22 
B) $1,239.33 
C) $1,137.10 
D) $1,084.44 
A) $1,156.22 
B) $1,239.33 
C) $1,137.10 
D) $1,084.44

Question 6

Nunavet Ocean Cruises sold an issue of 12-year $1,000 par bonds to build new ships.The bonds pay 4.85% interest,semiannually.Today's required rate of return is 9.7%.How much should these bonds sell for today? Round off to the nearest $1.

Accepted Answer

A) $771.86 
B) $732.93 
C) $660.45 
D) $598.33 
A) $771.86 
B) $732.93 
C) $660.45 
D) $598.33

Question 7

ND Electric Company issued $1,000 bonds that have an annual coupon rate of 6.5%.The present market value of the bonds is $1,225.If the bonds have 17 years remaining until maturity,what is the current yield on ND Electric Company bonds?

Accepted Answer

A) 5.3% 
B) 6.5% 
C) 7.2% 
D) 13.2% 
A) 5.3% 
B) 6.5% 
C) 7.2% 
D) 13.2%

Question 8

In an efficient securities market the market value of a security is equal to

Accepted Answer

A) its liquidation value. 
B) its book value. 
C) its intrinsic value. 
D) par value. 
A) its liquidation value. 
B) its book value. 
C) its intrinsic value. 
D) par value.

Question 9

Leveraged b (los)are used by existing corporate bondholders to increase the rate of return earned on their bonds.

Accepted Answer

A) True 
 B)False

Question 10

Due to a number of lawsuits related to toxic wastes,a major chemical company has recently experienced a market revaluation.The firm has bonds outstanding that were issued 8 years ago at their par value of $1,000.These bonds have 12 years to maturity and a coupon rate of 6 percent,with interest paid semiannually.The required return on these bonds has increased to 14 percent.What is the current value of one of these bonds?

Accepted Answer

Value of B

Question 11

Speculative,or non-investment-grade,bonds have an S&P bond rating of

Accepted Answer

A) C or less. 
B) CCC or less. 
C) BB or less. 
D) BBB or less. 
A) C or less. 
B) CCC or less. 
C) BB or less. 
D) BBB or less.

Question 12

A bond will sell at a discount (below par value)if

Accepted Answer

A) the market value of the bond is less than the present value of the discount rate of the bond. 
B) current market interest rates are moving in the same direction as bond values. 
C) investor's current required rate of return is above the coupon rate of the bond. 
D) the economy is booming. 
A) the market value of the bond is less than the present value of the discount rate of the bond. 
B) current market interest rates are moving in the same direction as bond values. 
C) investor's current required rate of return is above the coupon rate of the bond. 
D) the economy is booming.

Question 13

Which of the following affect an asset's value to an investor? 
I.Amount of an asset's expected cash flow 
II.The riskiness of the cash flows 
III.Timing of an asset's cash flows
IV.Investor's required rate of return

Accepted Answer

A) I,II,III 
B) I,III,IV 
C) I,II,IV 
D) I,II,III,IV 
A) I,II,III 
B) I,III,IV 
C) I,II,IV 
D) I,II,III,IV

Question 14

You want to invest in bonds.Explain whether or not each provision listed will make the bonds more or less desirable as an investment: call provision,convertible bond provision,subordinated debt

Accepted Answer

A call provision makes the bonds less de

Question 15

What is the expected rate of return on a bond that matures in 5 years,has a par value of $1,000,a coupon rate of 11.5%,and is currently selling for $982? Assume annual coupon payments.

Accepted Answer

A) 12.5% 
B) 12.0% 
C) 12.7% 
D) 13.4% 
A) 12.5% 
B) 12.0% 
C) 12.7% 
D) 13.4%

Question 16

The present value of the expected future cash flows of an asset represents the asset's

Accepted Answer

A) liquidation value. 
B) book value. 
C) intrinsic value. 
D) par value. 
A) liquidation value. 
B) book value. 
C) intrinsic value. 
D) par value.

Question 17

Harold considers investing in an LM Corp.bond and decides not to purchase the bond.Which of the following statements is MOST correct?

Accepted Answer

A) The intrinsic value of the bond for the investor is less than the market value of the bond. 
B) The liquidation value of the bond is greater than the market value of the bond. 
C) The intrinsic value of the bond for the investor is less than the par value of the bond. 
D) The intrinsic value of the bond for the investor is greater than the book value of the bond. 
A) The intrinsic value of the bond for the investor is less than the market value of the bond. 
B) The liquidation value of the bond is greater than the market value of the bond. 
C) The intrinsic value of the bond for the investor is less than the par value of the bond. 
D) The intrinsic value of the bond for the investor is greater than the book value of the bond.

Question 18

Which of the following statements is MOST correct?

Accepted Answer

A) If a bond's yield to maturity exceeds its coupon rate,the bond's current yield (interest yield)must also exceed its coupon rate. 
B) If a bond's yield to maturity exceeds its coupon rate,the bond's price must be less than its maturity value. 
C) If two bonds have the same maturity,the same yield to maturity,and the same level of risk,the bonds should sell for the same price regardless of the bond's coupon rate. 
D) Answers B and C are correct. 
A) If a bond's yield to maturity exceeds its coupon rate,the bond's current yield (interest yield)must also exceed its coupon rate. 
B) If a bond's yield to maturity exceeds its coupon rate,the bond's price must be less than its maturity value. 
C) If two bonds have the same maturity,the same yield to maturity,and the same level of risk,the bonds should sell for the same price regardless of the bond's coupon rate. 
D) Answers B and C are correct.

Question 19

When using the pvs (present value)function in Excel to calculate bond values,the bond's coupon rate is entered as the Rate variable.

Accepted Answer

A) True 
 B)False

Question 20

The Johnson Corporation issues a bond which has a coupon rate of 10.20%,a yield to maturity of 10.55%,a face value of $1,000,and a market price of $850.Therefore,the annual interest payment is

Accepted Answer

A) $101.75. 
B) $102. 
C) $105.50. 
D) $120.0. 
A) $101.75. 
B) $102. 
C) $105.50. 
D) $120.0.

If market interest rates rise

To determine the periodic interest payments that a bond makes,multiply the bond's stated coupon rate by its par value and divide by the number of coupon payments per year.

As market rates of interest rise,investors move their funds into bonds,thus increasing their price and lowering their yield.

A corporate bond has a coupon rate of 9%,a face value of $1,000,a market price of $850,and the bond matures in 15 years.Therefore,the bond's yield to maturity is

Alice Kitchen's,Inc.bonds have a 10% coupon rate with semiannual coupon payments.They have 12 and 1/2 years to maturity and a par value of $1,000.Compute the value of Alice's bonds if investors' required rate of return is 8%.

Nunavet Ocean Cruises sold an issue of 12-year $1,000 par bonds to build new ships.The bonds pay 4.85% interest,semiannually.Today's required rate of return is 9.7%.How much should these bonds sell for today? Round off to the nearest $1.

ND Electric Company issued $1,000 bonds that have an annual coupon rate of 6.5%.The present market value of the bonds is $1,225.If the bonds have 17 years remaining until maturity,what is the current yield on ND Electric Company bonds?

In an efficient securities market the market value of a security is equal to

Leveraged b (los)are used by existing corporate bondholders to increase the rate of return earned on their bonds.

Speculative,or non-investment-grade,bonds have an S&P bond rating of

A bond will sell at a discount (below par value)if

Which of the following affect an asset's value to an investor? I.Amount of an asset's expected cash flow II.The riskiness of the cash flows III.Timing of an asset's cash flows IV.Investor's required rate of return

You want to invest in bonds.Explain whether or not each provision listed will make the bonds more or less desirable as an investment: call provision,convertible bond provision,subordinated debt

What is the expected rate of return on a bond that matures in 5 years,has a par value of $1,000,a coupon rate of 11.5%,and is currently selling for $982? Assume annual coupon payments.

The present value of the expected future cash flows of an asset represents the asset's

Harold considers investing in an LM Corp.bond and decides not to purchase the bond.Which of the following statements is MOST correct?

Which of the following statements is MOST correct?

When using the pvs (present value)function in Excel to calculate bond values,the bond's coupon rate is entered as the Rate variable.

The Johnson Corporation issues a bond which has a coupon rate of 10.20%,a yield to maturity of 10.55%,a face value of $1,000,and a market price of $850.Therefore,the annual interest payment is

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

If market interest rates rise

To determine the periodic interest payments that a bond makes,multiply the bond's stated coupon rate by its par value and divide by the number of coupon payments per year.

As market rates of interest rise,investors move their funds into bonds,thus increasing their price and lowering their yield.

A corporate bond has a coupon rate of 9%,a face value of $1,000,a market price of $850,and the bond matures in 15 years.Therefore,the bond's yield to maturity is

Alice Kitchen's,Inc.bonds have a 10% coupon rate with semiannual coupon payments.They have 12 and 1/2 years to maturity and a par value of $1,000.Compute the value of Alice's bonds if investors' required rate of return is 8%.

Nunavet Ocean Cruises sold an issue of 12-year $1,000 par bonds to build new ships.The bonds pay 4.85% interest,semiannually.Today's required rate of return is 9.7%.How much should these bonds sell for today? Round off to the nearest $1.

ND Electric Company issued $1,000 bonds that have an annual coupon rate of 6.5%.The present market value of the bonds is $1,225.If the bonds have 17 years remaining until maturity,what is the current yield on ND Electric Company bonds?

In an efficient securities market the market value of a security is equal to

Leveraged b (los)are used by existing corporate bondholders to increase the rate of return earned on their bonds.

Speculative,or non-investment-grade,bonds have an S&P bond rating of

A bond will sell at a discount (below par value)if

Which of the following affect an asset's value to an investor? I.Amount of an asset's expected cash flow II.The riskiness of the cash flows III.Timing of an asset's cash flows IV.Investor's required rate of return

You want to invest in bonds.Explain whether or not each provision listed will make the bonds more or less desirable as an investment: call provision,convertible bond provision,subordinated debt

What is the expected rate of return on a bond that matures in 5 years,has a par value of $1,000,a coupon rate of 11.5%,and is currently selling for $982? Assume annual coupon payments.

The present value of the expected future cash flows of an asset represents the asset's

Harold considers investing in an LM Corp.bond and decides not to purchase the bond.Which of the following statements is MOST correct?

Which of the following statements is MOST correct?

When using the pvs (present value)function in Excel to calculate bond values,the bond's coupon rate is entered as the Rate variable.

The Johnson Corporation issues a bond which has a coupon rate of 10.20%,a yield to maturity of 10.55%,a face value of $1,000,and a market price of $850.Therefore,the annual interest payment is

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