Exam 6: Interest Rates and Bond Valuation

On ________, the stated interest rate is adjusted periodically within stated limits in response to changes in specified money or capital market rates.

A $1,000, 8% bond sells for 980. $1,000 is called the ________.

If a corporate bond is issued with a coupon rate that varies directly with the required return, the price of the bond will ________.

The value of any asset is the ________.

The yield curve in an economic period where lower future inflation is expected would be ________.

Debentures such as convertible bonds are unsecured bonds that only the most creditworthy firms can issue.

A Eurobond bond is a bond denominated in Euros.

The purpose of the debt covenant that prohibits borrowers from entering into certain types of leases is to ________.

For an investor who plans to purchase a bond maturing in one year, the primary consideration should be ________.

Which of the following is true of risk premium?

Bonds are ________.

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

The ________ is the compound annual rate of interest earned on a debt security purchased on a given date and held to maturity.

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

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

A real rate of interest is the compensation paid by the borrower of funds to the lender.

Danno is trying to decide which of two bonds to buy. Bond H is a 10 percent coupon, 10-year maturity, $1,000 par, January 1, 2000 issue paying annual interest. Bond F is a 10 percent coupon, 10-year maturity, $1,000 par, January 1, 2000 issue paying semiannual interest. The market required return for each bond is 10 percent. When using present value to determine the prices of the bonds, Danno will find that ________.

Duration measures the sensitivity of a bond's prices to changing interest rates.

Upward-sloping yield curves result from higher future inflation expectations, lender preferences for shorter maturity loans, and greater supply of short-term as opposed to long-term loans relative to their respective demand.

A bond issued by an American company that is denominated in Swiss Francs and sold in Switzerland would be an example of a foreign bond.