Exam 6: Interest Rates and Bond Valuation

Subordination means that subsequent creditors agree to wait until all claims of the senior debt are satisfied.

A normal yield curve is upward-sloping and indicates generally cheaper short-term borrowing costs than long-term borrowing costs.

________ is used to finance "rolling stock"-airplanes,trucks,boats,railroad cars.

Zhen Yi Computers has an outstanding issue of bond with a par value of $1,000, paying 12 percent coupon rate semi-annually. The bond was issued 25 years ago and has 5 years to maturity. What is the value of the bond assuming 14 percent rate of interest?

Payment of interest required only when earnings are made available from which to make a payment is characteristic of a(n) ________.

The liquidity preference theory suggests that for any given issuer, long-term interest rates tend to be higher than short-term rates due to the lower liquidity and higher responsiveness to general interest rate movements of longer-term securities; this causes the yield curve to be upward-sloping.

Calculate the value of a $1,000 bond which has 10 years until maturity and pays quarterly interest at an annual coupon rate of 12 percent. The required return on similar-risk bonds is 20 percent.

Table 6.1 Assume the below information to answer the following question(s). -Based on the table 6.1, on this trading day, the number of Ford bonds which changed hands was ________.

________ have a short maturities, typically one to five years, and which can be renewed for a similar period at the option of their holders.

If a bond's required return always equals its coupon interest rate, the bond's value will remain at par until it matures.

________ rate of interest creates equilibrium between the supply of savings and the demand for investment funds.

Interest rate risk is the risk that results from the changes in interest rates and thereby impact the bond value.

In the basic valuation model, risk is generally incorporated into the ________.

The ________ in the capital market is the basis for determining a bond's coupon interest rate.

Explain liquidity, default risk, and maturity risk premiums.

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

Putable bonds give the bondholders an option to sell the bond at a price higher than par value by the amount of one year interest payment when and if the firm takes specified actions such as being acquired, acquiring another company, or issuing a large amount of additional debt.

A putable bond gives the bondholder ________.

Corporate bonds have a ________.

An example of a standard debt provision is to ________.