Question 1

If a bond is selling below its face value,then its yield to maturity must be less than the bond's coupon rate.

Accepted Answer

A) True 
 B)False

Question 2

If a firm were to experience financial insolvency,the legal system provides an order of hierarchy for the payment of claims.Assume that a firm has the following outstanding securities: mortgage bonds,common stock,debentures,and preferred stock.Rank the order in which investors that own mortgage bonds would have their claim paid?

Accepted Answer

A) first 
B) second 
C) third 
D) fourth 
A) first 
B) second 
C) third 
D) fourth

Question 3

What is the value of a bond that matures in 5 years,has an annual coupon payment of $110,and a par value of $2,000? Assume a required rate of return of 8.69%.

Accepted Answer

A) $938.50 
B) $1,876.99 
C) $1,891.36 
D) $1,749.83 
A) $938.50 
B) $1,876.99 
C) $1,891.36 
D) $1,749.83

Question 4

gat,Inc.has issued a $1,000 par 4% annual coupon bond that is to mature in 18 years.If your required rate of return is 6.5%,what price would you be willing to pay for the bond?

Accepted Answer

$739.19 from Excel P

Question 5

Which of the following statements is true?

Accepted Answer

A) The value of a bond is inversely related to changes in investors' present required rate of return. 
B) If interest rates decrease,the value of a bond will decrease. 
C) If interest rates increase,the value of a bond will increase. 
D) If interest rates remain constant,the value of premium bonds will increase over time. 
A) The value of a bond is inversely related to changes in investors' present required rate of return. 
B) If interest rates decrease,the value of a bond will decrease. 
C) If interest rates increase,the value of a bond will increase. 
D) If interest rates remain constant,the value of premium bonds will increase over time.

Question 6

Federal regulations make it impossible for rating agencies to drop a company's credit rating more than two notches at a time in order to prevent panic in bond markets.

Accepted Answer

A) True 
 B)False

Question 7

What is the yield to maturity of a corporate bond with 13 years to maturity,a coupon rate of 8% per year,a $1,000 par value,and a current market price of $1,250? Assume semiannual coupon payments.

Accepted Answer

A) 4.2% 
B) 4.7% 
C) 6.0% 
D) 5.3% 
A) 4.2% 
B) 4.7% 
C) 6.0% 
D) 5.3%

Question 8

LRQ Inc.bonds on July 1,2006.The bonds had a coupon rate of 5.5%,with interest paid semiannually.The face value of the bonds is $1,000 and the bonds mature on July 1,2021.What is the intrinsic value of an LRQ Corporation bond on July 1,2012 to an investor with a required return of 7%?

Accepted Answer

A) $901.08 
B) $902.27 
C) $1,000.00 
D) $1,104.28 
A) $901.08 
B) $902.27 
C) $1,000.00 
D) $1,104.28

Question 9

A common protective provision in a bond indenture is the limitation of dividends on the issuing firm's common stock.

Accepted Answer

A) True 
 B)False

Question 10

Suppose interest rates have been at historically low levels the past two years.A reasonable strategy for bond investors during this time period would be to

Accepted Answer

A) invest in long-term bonds to reduce interest rate risk. 
B) invest in short-term bonds to reduce interest rate risk. 
C) buy only junk bonds which have higher interest rates. 
D) invest in long-term bonds to lock in a bond position for when interest rates increase in the future. 
A) invest in long-term bonds to reduce interest rate risk. 
B) invest in short-term bonds to reduce interest rate risk. 
C) buy only junk bonds which have higher interest rates. 
D) invest in long-term bonds to lock in a bond position for when interest rates increase in the future.

Question 11

Bart's Moving Company bonds have a 11% coupon rate.Interest is paid semiannually.The bonds have a par value of $1,000 and will mature 8 years from now.Compute the value of Bart's Moving Company bonds if investors' required rate of return is 9.5%.

Accepted Answer

A) $1,197.27 
B) $1,133.05 
C) $1,098.99 
D) $1,082.75 
A) $1,197.27 
B) $1,133.05 
C) $1,098.99 
D) $1,082.75

Question 12

Bonds issued in a country different from the one in which the currency of the bond is denominated are called Eurobonds.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements is true regarding convertible bonds?

Accepted Answer

A) The holder has the right to sell these bonds back to the issuer if the bonds don't perform well. 
B) The holder can convert these bonds into an equal number of new bonds if they choose to do so. 
C) These bonds are convertible into common stock of the issuing firm at a prespecified price. 
D) These bonds have a variable interest rate. 
A) The holder has the right to sell these bonds back to the issuer if the bonds don't perform well. 
B) The holder can convert these bonds into an equal number of new bonds if they choose to do so. 
C) These bonds are convertible into common stock of the issuing firm at a prespecified price. 
D) These bonds have a variable interest rate.

Question 14

When the intrinsic value of an asset exceeds the market value

Accepted Answer

A) the asset is undervalued to the investor. 
B) the asset is overvalued to the investor. 
C) market value and intrinsic value are always the same; therefore,this could not happen. 
D) liquidation value must be higher than book value. 
A) the asset is undervalued to the investor. 
B) the asset is overvalued to the investor. 
C) market value and intrinsic value are always the same; therefore,this could not happen. 
D) liquidation value must be higher than book value.

Question 15

If the market price of a bond decreases,then

Accepted Answer

A) the yield to maturity decreases. 
B) the coupon rate increases. 
C) the yield to maturity increases. 
D) the coupon rate decreases. 
A) the yield to maturity decreases. 
B) the coupon rate increases. 
C) the yield to maturity increases. 
D) the coupon rate decreases.

Question 16

The yield to maturity on long-term bonds

Accepted Answer

A) is equal to the current yield if the bond is selling for face value. 
B) is equal to the coupon rate on the bond. 
C) is equal to the net present value of the bond's future cash flows. 
D) is set by the indenture agreement and will not change over the life of the bond. 
A) is equal to the current yield if the bond is selling for face value. 
B) is equal to the coupon rate on the bond. 
C) is equal to the net present value of the bond's future cash flows. 
D) is set by the indenture agreement and will not change over the life of the bond.

Question 17

Put the following in order of their claim on assets of a firm,starting with the LAST to have a claim: A.Subordinated debentures B.Debentures (unsubordinated) C.Common Stock D.Preferred stock

Accepted Answer

A) C,B,A,D 
B) C,D,A,B 
C) B,A,C,D 
D) D,C,B,A 
E) D,C,A,B 
A) C,B,A,D 
B) C,D,A,B 
C) B,A,C,D 
D) D,C,B,A 
E) D,C,A,B

Question 18

a Heights Inc.bonds have a coupon rate of 7%,a yield to maturity of 10%,a face value of $1,000,and mature in 10 years.Which of the following statements is MOST correct?

Accepted Answer

A) An investor who purchases the bond today will earn a return of 10% if he sells the bond after one year. 
B) An investor who purchases the bond today will earn a return of 7% if he sells the bond after one year. 
C) An investor who purchases the bond today will earn a return of 17% per year if he holds the bond until it matures. 
D) An investor who purchases the bond today will earn a return of 10% per year if he holds the bond until it matures. 
A) An investor who purchases the bond today will earn a return of 10% if he sells the bond after one year. 
B) An investor who purchases the bond today will earn a return of 7% if he sells the bond after one year. 
C) An investor who purchases the bond today will earn a return of 17% per year if he holds the bond until it matures. 
D) An investor who purchases the bond today will earn a return of 10% per year if he holds the bond until it matures.

Question 19

Cabell Corp.bonds pay an annual coupon rate of 10%.If investors' required rate of return is now 12% on these bonds,they will be priced at

Accepted Answer

A) par value. 
B) a premium to par value. 
C) a discount to par value. 
D) Cannot be determined without knowing the number of years to maturity. 
A) par value. 
B) a premium to par value. 
C) a discount to par value. 
D) Cannot be determined without knowing the number of years to maturity.

Question 20

A company with a AAA bond rating will command a higher interest rate on its bonds than a company with a lesser BBB bond rating.

Accepted Answer

A) True 
 B)False

If a bond is selling below its face value,then its yield to maturity must be less than the bond's coupon rate.

What is the value of a bond that matures in 5 years,has an annual coupon payment of $110,and a par value of $2,000? Assume a required rate of return of 8.69%.

gat,Inc.has issued a $1,000 par 4% annual coupon bond that is to mature in 18 years.If your required rate of return is 6.5%,what price would you be willing to pay for the bond?

Which of the following statements is true?

Federal regulations make it impossible for rating agencies to drop a company's credit rating more than two notches at a time in order to prevent panic in bond markets.

What is the yield to maturity of a corporate bond with 13 years to maturity,a coupon rate of 8% per year,a $1,000 par value,and a current market price of $1,250? Assume semiannual coupon payments.

LRQ Inc.bonds on July 1,2006.The bonds had a coupon rate of 5.5%,with interest paid semiannually.The face value of the bonds is $1,000 and the bonds mature on July 1,2021.What is the intrinsic value of an LRQ Corporation bond on July 1,2012 to an investor with a required return of 7%?

A common protective provision in a bond indenture is the limitation of dividends on the issuing firm's common stock.

Suppose interest rates have been at historically low levels the past two years.A reasonable strategy for bond investors during this time period would be to

Bart's Moving Company bonds have a 11% coupon rate.Interest is paid semiannually.The bonds have a par value of $1,000 and will mature 8 years from now.Compute the value of Bart's Moving Company bonds if investors' required rate of return is 9.5%.

Bonds issued in a country different from the one in which the currency of the bond is denominated are called Eurobonds.

Which of the following statements is true regarding convertible bonds?

When the intrinsic value of an asset exceeds the market value

If the market price of a bond decreases,then

The yield to maturity on long-term bonds

Put the following in order of their claim on assets of a firm,starting with the LAST to have a claim: A.Subordinated debentures B.Debentures (unsubordinated) C.Common Stock D.Preferred stock

a Heights Inc.bonds have a coupon rate of 7%,a yield to maturity of 10%,a face value of $1,000,and mature in 10 years.Which of the following statements is MOST correct?

Cabell Corp.bonds pay an annual coupon rate of 10%.If investors' required rate of return is now 12% on these bonds,they will be priced at

A company with a AAA bond rating will command a higher interest rate on its bonds than a company with a lesser BBB bond rating.

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 a bond is selling below its face value,then its yield to maturity must be less than the bond's coupon rate.

What is the value of a bond that matures in 5 years,has an annual coupon payment of $110,and a par value of $2,000? Assume a required rate of return of 8.69%.

gat,Inc.has issued a $1,000 par 4% annual coupon bond that is to mature in 18 years.If your required rate of return is 6.5%,what price would you be willing to pay for the bond?

Which of the following statements is true?

Federal regulations make it impossible for rating agencies to drop a company's credit rating more than two notches at a time in order to prevent panic in bond markets.

What is the yield to maturity of a corporate bond with 13 years to maturity,a coupon rate of 8% per year,a $1,000 par value,and a current market price of $1,250? Assume semiannual coupon payments.

LRQ Inc.bonds on July 1,2006.The bonds had a coupon rate of 5.5%,with interest paid semiannually.The face value of the bonds is $1,000 and the bonds mature on July 1,2021.What is the intrinsic value of an LRQ Corporation bond on July 1,2012 to an investor with a required return of 7%?

A common protective provision in a bond indenture is the limitation of dividends on the issuing firm's common stock.

Suppose interest rates have been at historically low levels the past two years.A reasonable strategy for bond investors during this time period would be to

Bart's Moving Company bonds have a 11% coupon rate.Interest is paid semiannually.The bonds have a par value of $1,000 and will mature 8 years from now.Compute the value of Bart's Moving Company bonds if investors' required rate of return is 9.5%.

Bonds issued in a country different from the one in which the currency of the bond is denominated are called Eurobonds.

Which of the following statements is true regarding convertible bonds?

When the intrinsic value of an asset exceeds the market value

If the market price of a bond decreases,then

The yield to maturity on long-term bonds

Put the following in order of their claim on assets of a firm,starting with the LAST to have a claim: A.Subordinated debentures B.Debentures (unsubordinated) C.Common Stock D.Preferred stock

a Heights Inc.bonds have a coupon rate of 7%,a yield to maturity of 10%,a face value of $1,000,and mature in 10 years.Which of the following statements is MOST correct?

Cabell Corp.bonds pay an annual coupon rate of 10%.If investors' required rate of return is now 12% on these bonds,they will be priced at

A company with a AAA bond rating will command a higher interest rate on its bonds than a company with a lesser BBB bond rating.

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