Exam 5: Bonds, Bond Valuation, and Interest Rates

Haswell Enterprises' bonds have a 10-year maturity,a 6.25% semiannual coupon,and a par value of $1,000.The going interest rate (r_d)is 4.75%,based on semiannual compounding.What is the bond's price?

Income bonds pay interest only if the issuing company actually earns the indicated interest.Thus,these securities cannot bankrupt a company,and this makes them safer from an investor's perspective than regular 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?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Under normal conditions,which of the following would be most likely to increase the coupon rate required to enable a bond to be issued at par?

If a firm raises capital by selling new bonds,it is called the "issuing firm," and the coupon rate is generally set equal to the required rate on bonds of equal risk.

Which of the following statements is CORRECT?

Because short-term interest rates are much more volatile than long-term rates,you would,in the real world,generally be subject to much more interest rate price risk if you purchased a 30-day bond than if you bought a 30-year bond.

Kessen Inc.'s bonds mature in 7 years,have a par value of $1,000,and make an annual coupon payment of $70.The market interest rate for the bonds is 8.5%.What is the bond's price?

A 10-year bond pays an annual coupon,its YTM is 8%,and it currently trades at a premium.Which of the following statements is CORRECT?

Bond A has a 9% annual coupon,while Bond B has a 7% annual coupon.Both bonds have the same maturity,a face value of $1,000,and an 8% yield to maturity.Which of the following statements is CORRECT?

Bonds A,B,and C all have a maturity of 15 years and a yield to maturity of 9%.Bond A's price exceeds its par value,Bond B's price equals its par value,and Bond C's price is less than its par value.Which of the following statements is CORRECT?

The prices of high-coupon bonds tend to be less sensitive to a given change in interest rates than low-coupon bonds,other things held constant.

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 Gergen Group's 5-year bonds yield 6.85%,and 5-year T-bonds yield 4.75%.The real risk-free rate is r* = 2.80%,the default risk premium for Gergen's bonds is DRP = 0.85% versus zero for T-bonds,the liquidity premium on Gergen's bonds is LP = 1.25%,and the maturity risk premium for all bonds is found with the formula MRP = (t − 1)× 0.1%,where t = number of years to maturity.What is the inflation premium (IP)on 5-year bonds?

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?

Meacham Enterprises' bonds currently sell for $1,280 and have a par value of $1,000.They pay a $135 annual coupon and have a 15-year maturity,but they can be called in 5 years at $1,050.What is their yield to call (YTC)?

Nicholas Industries can issue a 20-year bond with a 6% annual coupon.This bond is not convertible,is not callable,and has no sinking fund.Alternatively,Nicholas could issue a 20-year bond that is convertible into common equity,may be called,and has a sinking fund.Which of the following most accurately describes the coupon rate that Nicholas would have to pay on the convertible,callable bond?