Exam 6: Bonds

Luther Industries needs to raise $25 million to fund a new office complex. The company plans on issuing ten-year bonds with a face value of $1,000 and a coupon rate of 7.5% (annual payments). The following table summarizes the YTM for similar ten-year corporate bonds of various credit ratings: Assuming that Luther's bonds are rated AAA, their price will be closest to ________.

A bond is currently trading below par. Which of the following must be true about that bond?

A corporate bond which receives a BBB rating from Standard & Poor's is considered ________.

Which of the following is true about the face value of a bond?

Why is the yield to maturity of a zero-coupon, risk-free bond that matures at the end of a given period the risk-free interest rate for that period?

A company issues a ten-year $1,000 face value bond at par with a coupon rate of 6.1% paid semiannually. The YTM at the beginning of the third year of the bond (8 years left to maturity)is 8.1%. What is the new price of the bond?

How are the cash flows of a coupon bond different from an amortizing loan?