Exam 6: Interest Rates and Bond Valuation

When the required return is different from the coupon interest rate and is constant until maturity, the value of the bond will approach its par value as it nears maturity.

When a bond's value differs from par, its yield to maturity will differ from its coupon interest rate.

The key inputs to the valuation process include ________.

Table 6.1 Assume the below information to answer the following question(s). -Based on the Table 6.1, assume this bond's face value is $1,000. What is the bond's current market price?

A yield curve that reflects relatively similar borrowing costs for both short- and long-term loans is called a normal yield curve.

Interest rate risk and the time to maturity have a relationship that is best characterized as ________.

To carry out systematic retirement of bonds, a corporation makes semiannual or annual payments that are used to retire bonds by purchasing them in the marketplace.

A(n) ________ yield curve reflects lower expected future rates of interest.

The cost of a long-term debt generally ________ that of a short-term debt.

The value of a bond is the present value of its interest payments plus ________.

Generally, an increase in risk will result in ________.

The expectations theory suggests that the shape of the yield curve reflects investors expectations about future interest rates.

The nominal rate of interest on a bond is 7% and an inflation premium of 3%. This results in a real rate of interest of 4% on the bond.

________ mainly explains the tendency for the yield curve to be upward sloping.

________ are claims that are not satisfied until those of the creditors holding certain (senior) debts have been fully satisfied.

Any bond rated Aaa through Caa according to Moody's, would be considered investment grade debt.

A type of long-term financing used by both corporations and government entities is ________.

A bond will sell at a premium when its required return rises above its coupon interest rate.

With subordinated debentures, payment of interest by a firm is required only when earnings are available.

The process that links risk and return in order to determine the worth of an asset is termed ________.