Exam 6: Interest Rates and Bond Valuation

Restrictive covenants, coupled with standard debt provisions, help the lender to monitor the borrower's activities to ensure efficient use of funds.

A(n) ________ is a graphic depiction between the maturity and rate of return for bonds with similar risks.

A firm has an issue of $1,000 par value bonds with a 9 percent stated interest rate outstanding. The issue pays interest annually and has 20 years remaining to its maturity date. If bonds of similar risk are currently earning 11 percent, the firm's bond will sell for ________ today.

Restrictive covenants place operating and financial constraints on the borrower.

Tangshan Industries has issued a bond which has a $1,000 par value and a 15 percent annual coupon interest rate. The bond will mature in ten years and currently sells for $1,250. Using this information, the yield to maturity on the Tangshan Industries bond is ________.

A record collector has agreed to sell her entire collection to a historical museum in three years at a price of $100,000. The current risk-free rate is 7 percent. At what price should she value her collection today?

In a bond indenture, the term "security interest" refers to collateral pledged against the bond.

________ bonds are characterized by interest payments that are required only when earnings are available.

The possibility that the issuer of a bond will not pay the contractual interest or principal payments as scheduled is called default risk.

A foreign bond is a bond issued by a foreign corporation or government and is denominated in the investor's home currency and sold in the investor's home market.

The purpose of the restrictive debt covenant that prohibits the sale of accounts receivable is to ________.

The ________ rate is typically the nominal rate of interest on a three-month U.S. Treasury bill.

Bond indentures include restrictive covenants.These provisions protect the bondholders against ________.

Gong Li has recently inherited $10,000 and is considering purchasing 10 bonds of the Lucky Corporation. The bond has a par value of $1,000 with 10 percent coupon rate and will mature in 10 years. Does Gong Li have enough money to buy 10 bonds if the required rate of return is 9 percent?

Which of the following affects the slope of yield curve?

A(n) ________ is a paid individual, corporation, or a commercial bank trust department that acts as a third party to a bond indenture.

Table 6.2 -(a) Calculate the current value of Bond L. (See Table 6.2) (b) What will happen to the value/price as the bond approaches maturity?

________ are commonly issued in the reorganization of a failed or failing firm.

Any Ba rated bond or lower would be considered speculative or "junk."

A debenture is ________.