Exam 8: Interest Rates and Bond Valuation

Allison's wants to raise $12.4 million to expand its business.To accomplish this,it plans to sell 25-year,$1,000 face value,zero-coupon bonds.The bonds will be priced to yield 6.5 percent,with semiannual compounding.What is the minimum number of bonds the firm must sell to raise the $12.4 million it needs?

TJ's offers a $1,000 face value,zero coupon bond with a yield to maturity of 11.3 percent,given annual compounding.The bond matures in 16 years.What is the current price?

The relationship between nominal interest rates on default-free,pure discount securities and the time to maturity is called the:

The bonds issued by Manson and Son bear a coupon of 6 percent,payable semiannually.The bond matures in 15 years and has a $1,000 face value.Currently,the bond sells at par.What is the yield to maturity?

The ________ premium is that portion of a nominal interest rate or bond yield that represents compensation for expected future loss in purchasing power.

All else held constant,interest rate risk will increase when the time to maturity:

Consider a bond with a coupon rate of 8 percent that pays semiannual interest and matures in eight years.The market rate of return on bonds of this risk is currently 11 percent.What is the current value of a $1,000 face value bond?

All else constant,a bond will sell at ________ when the yield to maturity is ________ the coupon rate.

The nominal rate of return on a bond is 7.28 percent while the real rate is 3.09 percent.What is the rate of inflation?

Define what is meant by interest rate risk.Also,assume the manager of a $100 million portfolio of corporate bonds predicts interest rates will rise in the near future.What adjustments should be made to the portfolio assuming the market has not already adjusted for this prediction?

Why do corporations issue 100-year bonds,knowing that interest rate risk is highest for very long-term bonds? How does the interest rate risk affect the issuer?

The monthly returns on US Treasury bills over the past 50 years have:

The Lo Sun Corporation offers a bond with a current market price of $1,029.75,a coupon rate of 8 percent,and a yield to maturity of 7.52 percent.The face value is $1,000.Interest is paid semiannually.How many years is it until this bond matures?

A newspaper listing of bond prices has an "Asked yield" column.This yield is based on the asked price and represents the:

The interest paid on any municipal bond is:

Aivree is buying a $1,000 face value bond at a quoted price of 99.486.The bond carries a coupon rate of 5.6 percent,with interest paid semiannually.The next interest payment is four months from today.What is the clean price of this bond?

Most of the trading in bonds is conducted:

If a bond's yield to maturity is less than its coupon rate,the bond will sell at a ________,and increases in market interest rates will:

A bond with a face value of $1,000 that sells for less than $1,000 in the market is called a ________ bond.

Westover's has an outstanding bond with a coupon rate of 5.5 percent that matures in 12 years.The bond pays interest semiannually.What is the market price of one $1,000 face value bond if the yield to maturity is 7.13 percent?