Exam 7: Valuing Bonds

Bond Ratings and Prices A corporate bond with a 5.75 percent coupon has 15 years left to maturity.It has had a credit rating of BB and a yield to maturity of 6.25 percent.The firm has recently gotten more financially stable and the rating agency is upgrading the bonds to BBB.The new appropriate discount rate will be 6.00 percent.What will be the change in the bond's price in dollars? (Assume interest payments are paid semi-annually and a par value of $1,000.)

A 6.75 percent coupon bond with 13 years left to maturity can be called in two years.The call premium is one year of coupon payments.It is offered for sale at $919.75.What is the yield to call of the bond? Assume interest payments are paid semi-annually and par value is $1,000.

Which of the following is a debt security whose payments originate from other loans,such as credit card debt,auto loans,and home equity loans?

Which of following are backed only by the reputation and financial stability of the corporation?

Which of the following was the catalyst for the recent financial crisis?

Yields of a Bond A 4.75 percent coupon municipal bond has 20 years left to maturity and has a price quote of 98.9.The bond can be called in five years.The call premium is one year of coupon payments.Compute and discuss the bond's current yield,yield to maturity,taxable equivalent yield (for an investor in the 35 percent marginal tax bracket),and yield to call.(Assume interest payments are paid semi-annually and a par value of $5,000.)

To increase the liquidity for the home mortgage market,Fannie Mae and Freddie Mac purchased home mortgages from banks and other lenders.They combined the mortgages into diversified portfolios of loans and issued:

If a bond is selling at a premium,then:

Bond Quotes Consider the following three bond quotes; a Treasury note quoted at 87:25,and a corporate bond quoted at 102.42,and a municipal bond quoted at 101.45.If the Treasury and corporate bonds have a par value of $1,000 and the municipal bond has a par value of $5,000,what is the price of these three bonds in dollars?

Describe the relationship between interest rate changes and bond prices.

Bond prices are quoted in terms of which of the following?

Which of the following is a reason municipal bonds offer lower rates of interest income for their investors?

Calculate the price of a 6.5% coupon bond with 17 years left to maturity and a market interest rate of 10.5%.(Assume interest rates are semiannual and par value is $1,000.)Is this a discount or premium bond?

Explain how mortgage-backed securities work.

Which of these statements is false?

A 5.5 percent coupon municipal bond has 16 years left to maturity and has a price quote of 92.55.The bond can be called in nine years.The call premium is one year of coupon payments.Compute the bond's current yield.Assume interest payments are paid semi-annually and a par value of $5,000.

Possible shapes for the yield include all of the following EXCEPT:

Which of the following is not a correct statement?