Exam 7: Bonds and Their Valuation

Bond A has a 9% annual coupon,while Bond B has a 7% annual coupon.Both bonds have the same maturity,a face value of $1,000,an 8% yield to maturity,and are noncallable.Which of the following statements is CORRECT?

Keenan Industries has a bond outstanding with 15 years to maturity,an 8.25% nominal coupon,semiannual payments,and a $1,000 par value.The bond has a 6.50% nominal yield to maturity,but it can be called in 6 years at a price of $1,120.What is the bond's nominal yield to call?

If its yield to maturity declined by 1%,which of the following bonds would have the largest percentage increase in value?

Assume that all interest rates in the economy decline from 10% to 9%.Which of the following bonds would have the largest percentage increase in price?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Listed below are some provisions that are often contained in bond indentures.Which of these provisions,viewed alone,would tend to reduce the yield to maturity that investors would otherwise require on a newly issued bond? 1)Fixed assets are used as security for a bond. 2)A given bond is subordinated to other classes of debt. 3)The bond can be converted into the firm's common stock. 4)The bond has a sinking fund. 5)The bond has a call provision. "6)The indenture contains covenants that restrict the use of additional debt. ​"

Grossnickle Corporation issued 20-year,noncallable,7.5% annual coupon bonds at their par value of $1,000 one year ago.Today,the market interest rate on these bonds is 5.5%.What is the current price of the bonds,given that they now have 19 years to maturity?

Assuming all else is constant,which of the following statements is CORRECT?

A zero coupon bond is a bond that pays no interest and is offered (and initially sells)at par.These bonds provide compensation to investors in the form of capital appreciation.

Which of the following statements is CORRECT?

O'Brien Ltd.'s outstanding bonds have a $1,000 par value,and they mature in 25 years.Their nominal yield to maturity is 9.25%,they pay interest semiannually,and they sell at a price of $975.What is the bond's nominal coupon interest rate?

Which of the following statements is CORRECT?

A Treasury bond has an 8% annual coupon and a 7.5% yield to maturity.Which of the following statements is CORRECT?

Dyl Inc.'s bonds currently sell for $1,040 and have a par value of $1,000.They pay a $65 annual coupon and have a 15-year maturity,but they can be called in 5 years at $1,100.What is their yield to maturity (YTM)?

Tucker Corporation is planning to issue new 20-year bonds.The current plan is to make the bonds non-callable,but this may be changed.If the bonds are made callable after 5 years at a 5% call premium,how would this affect their required rate of return?

The desire for floating-rate bonds,and consequently their increased usage,arose out of the experience of the early 1980s,when inflation pushed interest rates up to very high levels and thus caused sharp declines in the prices of outstanding bonds.

Morin Company's bonds mature in 8 years,have a par value of $1,000,and make an annual coupon interest payment of $65.The market requires an interest rate of 8.2% on these bonds.What is the bond's price?

A 10-year bond pays an annual coupon,its YTM is 8%,and it currently trades at a premium.Which of the following statements is CORRECT?

There is an inverse relationship between bonds' quality ratings and their required rates of return.Thus,the required return is lowest for AAA-rated bonds,and required returns increase as the ratings get lower.