Exam 8: Interest Rates and Bond Valuation

Chocolate and More offers a bond with a coupon rate of 6 percent,semiannual payments,and a yield to maturity of 7.73 percent.The bonds mature in 9 years.What is the market price of a $1,000 face value bond?

If a bond provides a real rate of return of 2.89 percent at a time when inflation is 3.21 percent,what is the nominal rate of return on the bond?

If you want to increase your purchasing power by investing in a bond,then:

Suzette owns a corporate bond with a yield to maturity of 7.45 percent.She is in the 12 percent tax bracket.What is her equivalent rate of return on a municipal bond? Ignore state taxes.

Should investors be indifferent between two bonds which have equal market yields to maturity as long as the bonds have the same bond rating? Can you think of any real-world factors which might make a given investor prefer one of these bonds over the other?

The promised coupon payments on a US TIPS bond are specified in:

Rosina purchased one 15-year bond at par value when it was initially issued.This bond has a coupon rate of 7 percent and matures 13 years from now.If the current market rate for this type and quality of bond is 7.5 percent,then Rosina should expect:

The term structure of interest rates:

Which one of these combinations of bond ratings represents a crossover situation?

A bond with a coupon rate of 6 percent that pays interest semiannually and is priced at par will have a market price of ________ and interest payments in the amount of ________ each.

All else constant,a coupon bond that is selling at a premium,must have:

A corporate bond has a coupon rate of 6 percent,a $1,000 face value,and matures two years from today.The corporation is in a serious financial situation and has announced that no future annual interest payments will be paid and that only 50 percent of the face value will be repaid but that payment will be delayed by one year.What is the current value of this bond to a bondholder with a required rate of return of 14 percent?

Normally,the Treasury yield curve is upward-sloping.Explain the conditions required for a downward-sloping yield curve to exist.

Moon Lite Cafe has a semiannual,5 percent coupon bond with a current market price of $988.52.The bond has a par value of $1,000 and a yield to maturity of 5.68 percent.How many years is it until this bond matures?

Explain liquidity risk,default risk,and taxability risk.How does each of these risks affect the yield of a bond?

Which of these is included in the return on a municipal bond but excluded from the return on a US Treasury bond?

Aspens is preparing a bond offering with a coupon rate of 5.5 percent.The bonds will be repaid in 10 years.The company plans to issue the bonds at par value and pay interest annually.Which one of the following statements is correct? Assume a face value of $1,000.

A par value bond offers a coupon rate of 7 percent with semiannual interest payments.The effective annual rate provided by these bonds must be:

Last year,a bond yielded a nominal return of 7.37 percent while inflation averaged 3.26 percent.What was the real rate of return?

A bond that makes no coupon payments and is initially priced at a deep discount is called a ________ bond.