Exam 7: The Valuation and Characteristics of Bonds

Assume that Brady Corp.has an issue of 18-year $1,000 par value bonds that pay 7% interest,annually.Further assume that today's required rate of return on these bonds is 5%.How much would these bonds sell for today? Round off to the nearest $1.

SWH Corporation issued bonds on January 1,2004.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 January 1,2019.What is the yield to maturity for an SWH Corporation bond on January 1,2010 if the market price of the bond on that date is $950?

If the market price of a bond decreases,then

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 semi-annual coupon payments.

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

If market interest rates decline

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

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

What is the value of a bond that matures in 17 years,makes an annual coupon payment of $50,and has a par value of $1,000? Assume a required rate of return of 6%.

PDQ bonds have a par value of $1,000.The bonds pay $40 in interest every six months and will mature in 10 years. a.Calculate the price if the yield to maturity on the bonds is 7,8,and 9 percent,respectively. b.Explain the impact on price if the required rate of return decreases. c.Compute the coupon rate on the bonds.How does the relationship between the coupon rate and the yield to maturity determine how a bond's price will compare to it par value?

A zero coupon bond is selling for $476.The bond has a face value of $1,000 and matures in 8 years.Your friend asks you if he should buy the bond.He tells you his required return is 9 percent.Would you recommend he buy the bond or not? Explain your answer.

The current yield for a bond is constant over time because the coupon rate is fixed.

A bond with a $1,000 face value and a 10 percent annual coupon rate matures in 15 years. a.Determine the value of the bond to a friend of yours with a required rate of return of 13%. b.A zero coupon bond with similar risk is selling for $180.The bond has a face value of $1,000 and matures in 15 years.Your friend asks you which bond she should invest in,the zero coupon bond or the bond in part (a).Which bond do you recommend,and why? Assume the market price of the bond in part (a)is $820.

Finance theory suggests that the current market value of a bond is based upon which of the following?

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?

The expected yield on junk bonds is higher than the yield on AAA-rated bonds because of the higher default risk associated with junk bonds.

In an efficient market,two investors may agree on the amount and timing of a bond's expected cash flows and also on the bond's risk level,as measured by its debt rating,and still determine two different values for the bond.

In the case of insolvency,the claims of debt are honored prior to those of common stock and after those of preferred stock.

A corporate bond is currently selling for $850.The bond matures in 20 years,has a face value of $1,000,and a yield to maturity of 10.55%.The bond's coupon rate is

An individual investor considers investing in an XYZ Corp.bond and decides not to purchase the bond.Which of the following statements is most correct?