Exam 7: Bonds and Their Valuation

Bond X has an 8% annual coupon,Bond Y has a 10% annual coupon,and Bond Z has a 12% annual coupon.Each of the bonds is noncallable,has a maturity of 10 years,and has a yield to maturity of 10%.Which of the following statements is CORRECT?

Which of the following events would make it more likely that a company would call its outstanding callable bonds?

Which of the following bonds would have the greatest percentage increase in value if all interest rates in the economy fall by 1%?

A 10-year corporate bond has an annual coupon of 9%.The bond is currently selling at par ($1,000).Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

You are considering 2 bonds that will be issued tomorrow.Both are rated triple B (BBB,the lowest investment-grade rating),both mature in 20 years,both have a 10% coupon,neither can be called except for sinking fund purposes,and both are offered to you at their $1,000 par values.However,Bond SF has a sinking fund while Bond NSF does not.Under the sinking fund,the company must call and pay off 5% of the bonds at par each year.The yield curve at the time is upward sloping.The bond's prices,being equal,are probably not in equilibrium,as Bond SF,which has the sinking fund,would generally be expected to have a higher yield than Bond NSF.

Assume that you are considering the purchase of a 20-year,noncallable bond with an annual coupon rate of 9.5%.The bond has a face value of $1,000,and it makes semiannual interest payments.If you require an 8.4% nominal yield to maturity on this investment,what is the maximum price you should be willing to pay for the bond?

Which of the following statements is CORRECT?

Suppose a new company decides to raise a total of $200 million,with $100 million as common equity and $100 million as long-term debt.The debt can be mortgage bonds or debentures,but by an iron-clad provision in its charter,the company can never raise any additional debt beyond the original $100 million.Given these conditions,which of the following statements is CORRECT?

Which of the following statements is CORRECT?

The price sensitivity of a bond to a given change in interest rates is generally greater the longer the bond's remaining maturity.

You are considering two bonds.Bond A has a 9% annual coupon while Bond B has a 6% annual coupon.Both bonds have a 7% yield to maturity,and the YTM is expected to remain constant.Which of the following statements is CORRECT?

A bond has a $1,000 par value,makes annual interest payments of $100,has 5 years to maturity,cannot be called,and is not expected to default.The bond should sell at a premium if market interest rates are below 10% and at a discount if interest rates are greater than 10%.

Which of the following statements is CORRECT?

In order to accurately assess the capital structure of a firm,it is necessary to convert its balance sheet figures from historical book values to market values.KJM Corporation's balance sheet (book values)as of today is as follows: ​ The bonds have a 7.0% coupon rate,payable semiannually,and a par value of $1,000.They mature exactly 10 years from today.The yield to maturity is 11%,so the bonds now sell below par.What is the current market value of the firm's debt?

Which of the following statements is CORRECT?

Junk bonds are high-risk,high-yield debt instruments.They are often used to finance leveraged buyouts and mergers,and to provide financing to companies of questionable financial strength.

The market value of any real or financial asset,including stocks,bonds,or art work purchased in hope of selling it at a profit,may be estimated by determining future cash flows and then discounting them back to the present.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?