Exam 6: Interest Rates and Bond Valuation

The size of a loan and its issuance costs (as a percentage of the amount borrowed) are ________.

A firm has an issue of $1,000 par value bonds with a 12 percent stated interest rate outstanding. The issue pays interest annually and has 10 years remaining to its maturity date. If bonds of similar risk are currently earning 8 percent, the firm's bond will sell for ________ today.

The purpose of the restrictive debt covenant that imposes fixed assets restrictions is to ________.

The current yield on a bond is measured by ________.

If the required return is less than the coupon rate, a bond will sell at ________.

A debt instrument indicating that a corporation has borrowed a certain amount of money and promises to repay it in the future under clearly defined terms is called a(n) ________.

The ________ feature permits the issuer to repurchase bonds at a stated price prior to maturity.

The lower a bond's default risk, the higher is the interest rate.

Bonds that can be redeemed at par at the option of their holders either at specific date after the date of issue and every 1 to 5 years thereafter or when and if the firm takes specified actions such as being acquired, acquiring another company, or issuing a large amount of additional debt are called ________.

A(n) ________ is secured by real estate.

What is the approximate yield to maturity for a $1,000 par value bond selling for $1,120 that matures in 6 years and pays 12 percent interest annually?

The value of a bond is the present value of the ________.

A foreign bond is issued by a(n) ________.

Table 6.2 -Calculate the current value of Bond M. (See Table 6.2)

The liquidity preference theory suggests that the shape of the yield curve is determined by the supply and demand for funds within each maturity segment.

An inverted yield curve is an upward-sloping yield curve that indicates generally cheaper short-term borrowing costs than long-term borrowing costs.

A flat yield curve means that the rates do not vary much at different maturities.

A conversion feature in a bond allows bondholders to change each bond into a stated number of shares of common stock.

The value of an asset is determined by discounting the expected cash flows back to its present value, using an appropriate discount rate.

The call option in a bond has a greater chance of being exercised (to the detriment of the bondholder) if market interest rates have fallen since the bond was issued.