Question 1

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 2

In the present value bond valuation model,risk is generally incorporated into the

Accepted Answer

A)  maturity amount. 
B)  timing of cash flows (assuming more risky cash flows are received early). 
C)  discount rate or required return. 
D)  cash flows (making some smaller if they are more risky). 
A)  maturity amount. 
B)  timing of cash flows (assuming more risky cash flows are received early). 
C)  discount rate or required return. 
D)  cash flows (making some smaller if they are more risky).

Question 3

A mortgage bond is secured by a lien on real property.

Accepted Answer

A) True 
 B)False

Question 4

Alaska Power 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 Alaska Power 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 5

If the demand for a new bond issue increases,it is likely that the coupon rate will be adjusted upward by the issuing company.

Accepted Answer

A) True 
 B)False

Question 6

What is the value of a bond that has a par value of $1,000,a coupon of $120 (annually),and matures in 10 years? Assume a required rate of return of 7.8%.

Accepted Answer

A)  $1,198.45 
B)  $1,200.43 
C)  $1,284.38 
D)  $1,349.76 
A)  $1,198.45 
B)  $1,200.43 
C)  $1,284.38 
D)  $1,349.76

Question 7

Other things held equal,a bond with a call provision is worth more to investors than a bond without a call provision.

Accepted Answer

A) True 
 B)False

Question 8

A bond selling at a discount will have a built-in capital gain if the bond is held to maturity.

Accepted Answer

A) True 
 B)False

Question 9

A firm's bond rating would be favorably affected if they have a low use of financial leverage (debt).

Accepted Answer

A) True 
 B)False

Question 10

If two bonds have the same yield to maturity,they also have the same current yield.

Accepted Answer

A) True 
 B)False

Question 11

The interest on corporate bonds is typically paid

Accepted Answer

A)  semi-annually. 
B)  annually. 
C)  quarterly. 
D)  monthly. 
A)  semi-annually. 
B)  annually. 
C)  quarterly. 
D)  monthly.

Question 12

If a bond's rating declines,the interest rate demanded by investors,called the required return,also decreases.

Accepted Answer

A) True 
 B)False

Question 13

Market efficiency implies which of the following?

Accepted Answer

A)  book value = intrinsic value 
B)  market value = intrinsic value 
C)  book value = market value 
D)  liquidation value = book value 
A)  book value = intrinsic value 
B)  market value = intrinsic value 
C)  book value = market value 
D)  liquidation value = book value

Question 14

In 1998 Fischer Corp issued bonds with an 8 percent coupon rate and a $1,000 face value.The bonds mature on March 1,2023.If an investor purchased one of these bonds on March 1,2010,determine the yield to maturity if the investor paid $1,100 for the bond.

Accepted Answer

A)  7% 
B)  The yield to maturity is $900 ($1,000 interest less $100 capital loss). 
C)  The yield to maturity must be greater than 8% because the price paid for the bond exceeds the face value. 
D)  5.4% 
A)  7% 
B)  The yield to maturity is $900 ($1,000 interest less $100 capital loss). 
C)  The yield to maturity must be greater than 8% because the price paid for the bond exceeds the face value. 
D)  5.4%

Question 15

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 16

Which of the following statements is true?

Accepted Answer

A)  Short-term bonds have greater interest rate risk than do long-term bonds. 
B)  Long-term bonds have greater interest rate risk than do short-term bonds. 
C)  All bonds have equal interest rate risk. 
D)  Interest rate risk is highest during periods of high interest rates. 
A)  Short-term bonds have greater interest rate risk than do long-term bonds. 
B)  Long-term bonds have greater interest rate risk than do short-term bonds. 
C)  All bonds have equal interest rate risk. 
D)  Interest rate risk is highest during periods of high interest rates.

Question 17

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 18

The yield to maturity is the discount rate that equates the present value of the interest and principal payments with the current market price of the bond.

Accepted Answer

A) True 
 B)False

Question 19

A bond that matures in 5 years has less interest rate risk than a bond that matures in 25 years because regardless of changes in interest rates,the bond can be redeemed for face value 20 years earlier.

Accepted Answer

A) True 
 B)False

Question 20

Zevo Corp.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.

Which of the following statements is true regarding convertible bonds?

In the present value bond valuation model,risk is generally incorporated into the

A mortgage bond is secured by a lien on real property.

Alaska Power 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 Alaska Power Company bonds?

If the demand for a new bond issue increases,it is likely that the coupon rate will be adjusted upward by the issuing company.

What is the value of a bond that has a par value of $1,000,a coupon of $120 (annually),and matures in 10 years? Assume a required rate of return of 7.8%.

Other things held equal,a bond with a call provision is worth more to investors than a bond without a call provision.

A bond selling at a discount will have a built-in capital gain if the bond is held to maturity.

A firm's bond rating would be favorably affected if they have a low use of financial leverage (debt).

If two bonds have the same yield to maturity,they also have the same current yield.

The interest on corporate bonds is typically paid

If a bond's rating declines,the interest rate demanded by investors,called the required return,also decreases.

Market efficiency implies which of the following?

In 1998 Fischer Corp issued bonds with an 8 percent coupon rate and a $1,000 face value.The bonds mature on March 1,2023.If an investor purchased one of these bonds on March 1,2010,determine the yield to maturity if the investor paid $1,100 for the bond.

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

Which of the following statements is true?

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

The yield to maturity is the discount rate that equates the present value of the interest and principal payments with the current market price of the bond.

A bond that matures in 5 years has less interest rate risk than a bond that matures in 25 years because regardless of changes in interest rates,the bond can be redeemed for face value 20 years earlier.

Zevo Corp.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?

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

Current Asset Management

International Business Finance

Filters

Exam 7: The Valuation and Characteristics of Bonds

Which of the following statements is true regarding convertible bonds?

In the present value bond valuation model,risk is generally incorporated into the

A mortgage bond is secured by a lien on real property.

Alaska Power 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 Alaska Power Company bonds?

If the demand for a new bond issue increases,it is likely that the coupon rate will be adjusted upward by the issuing company.

What is the value of a bond that has a par value of $1,000,a coupon of $120 (annually),and matures in 10 years? Assume a required rate of return of 7.8%.

Other things held equal,a bond with a call provision is worth more to investors than a bond without a call provision.

A bond selling at a discount will have a built-in capital gain if the bond is held to maturity.

A firm's bond rating would be favorably affected if they have a low use of financial leverage (debt).

If two bonds have the same yield to maturity,they also have the same current yield.

The interest on corporate bonds is typically paid

If a bond's rating declines,the interest rate demanded by investors,called the required return,also decreases.

Market efficiency implies which of the following?

In 1998 Fischer Corp issued bonds with an 8 percent coupon rate and a $1,000 face value.The bonds mature on March 1,2023.If an investor purchased one of these bonds on March 1,2010,determine the yield to maturity if the investor paid $1,100 for the bond.

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

Which of the following statements is true?

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

The yield to maturity is the discount rate that equates the present value of the interest and principal payments with the current market price of the bond.

A bond that matures in 5 years has less interest rate risk than a bond that matures in 25 years because regardless of changes in interest rates,the bond can be redeemed for face value 20 years earlier.

Zevo Corp.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?

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

Current Asset Management

International Business Finance

Filters