Question 1

Pursuant to the Fisher Effect,the real interest rate is exactly equal to the nominal interest rate less the rate of inflation.

Accepted Answer

A) True 
 B)False  False

Question 2

The sensitivity of a bond's value to changing interest rates depends on both the bond's time to maturity and its pattern of cash flows.

Accepted Answer

A) True 
 B)False  True

Question 3

Which of the following statements is true?

Accepted Answer

A) When investors' required rate of return equals the bond's coupon rate,then the market value of the bond may be selling at par value. 
B) When investors' required rate of return exceeds the bond's coupon rate,then the market value of the bond will be greater than par value. 
C) When investors' required rate of return is less than the bond's coupon rate,then market value of the bond will be greater than par value. 
D) When investors' required rate of return is less than the bond's coupon rate,then the market value of the bond will be less than par value. 
A) When investors' required rate of return equals the bond's coupon rate,then the market value of the bond may be selling at par value. 
B) When investors' required rate of return exceeds the bond's coupon rate,then the market value of the bond will be greater than par value. 
C) When investors' required rate of return is less than the bond's coupon rate,then market value of the bond will be greater than par value. 
D) When investors' required rate of return is less than the bond's coupon rate,then the market value of the bond will be less than par value. C

Question 4

Given the following information,determine the market value of EAO Company bonds.
Par value $1,000
Coupon rate 10%
Years to maturity 6
Market rate 8%
Interest paid semiannually

Accepted Answer

N=12,i=4,PMT=50,FV=1

Question 5

BCD's $1,000 par value bonds currently sell for $798.50.The coupon rate is 10%,paid semiannually.If the bonds have five years before maturity,what is the yield to maturity or expected rate of return?

Accepted Answer

N=10,PV=-798.50,PMT=

Question 6

Which of the following statements about bonds is true?

Accepted Answer

A) Bond prices move in the same direction as market interest rates. 
B) If market interest rates change,long-term bonds will fluctuate more in value than short-term bonds. 
C) Long-term bonds are less risky than short-term bonds. 
D) If market interest rates are higher than a bond's coupon interest rate,then the bond will sell above its par value. 
E) None of the above. 
A) Bond prices move in the same direction as market interest rates. 
B) If market interest rates change,long-term bonds will fluctuate more in value than short-term bonds. 
C) Long-term bonds are less risky than short-term bonds. 
D) If market interest rates are higher than a bond's coupon interest rate,then the bond will sell above its par value. 
E) None of the above.

Question 7

A bond investor seeking capital gains should purchase

Accepted Answer

A) bonds with short maturity dates when interest rates are expected to rise. 
B) bonds with distant maturity dates when interest rates are expected to rise. 
C) bonds with short maturity dates when interest rates are expected to decline. 
D) bonds with distant maturity dates when interest rates are expected to decline. 
A) bonds with short maturity dates when interest rates are expected to rise. 
B) bonds with distant maturity dates when interest rates are expected to rise. 
C) bonds with short maturity dates when interest rates are expected to decline. 
D) bonds with distant maturity dates when interest rates are expected to decline.

Question 8

Generic,Inc.has bonds outstanding that mature in 20 years.The bonds have $1,000 par value,pay interest annually at a rate of 10%,and have a current selling price of $875.25.The current yield on the bonds is 11.63%.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements about bonds is true?

Accepted Answer

A) If market interest rates are below a bond's coupon interest rate,then the bond will sell above its par value. 
B) Long-term bonds have less interest rate risk than do short-term bonds. 
C) Bond prices move in the same direction as market interest rates. 
D) As the maturity date of a bond approaches,the market value of a bond will become more volatile. 
A) If market interest rates are below a bond's coupon interest rate,then the bond will sell above its par value. 
B) Long-term bonds have less interest rate risk than do short-term bonds. 
C) Bond prices move in the same direction as market interest rates. 
D) As the maturity date of a bond approaches,the market value of a bond will become more volatile.

Question 10

As the time to maturity increases,the maturity premium increases.

Accepted Answer

A) True 
 B)False

Question 11

A $1,000 par value 10-year bond with a 10% coupon rate recently sold for $900.The yield to maturity

Accepted Answer

A) is 10%. 
B) is greater than 10%. 
C) is less than 10%. 
D) cannot be determined. 
A) is 10%. 
B) is greater than 10%. 
C) is less than 10%. 
D) cannot be determined.

Question 12

So long as a bond sells for an amount above its par value,the coupon interest rate and yield to maturity remain equal.

Accepted Answer

A) True 
 B)False

Question 13

A(n)________ is used to outline the issuing company's contractual obligations to bondholders.

Accepted Answer

A) mortgage 
B) debenture 
C) bond rating 
D) indenture 
A) mortgage 
B) debenture 
C) bond rating 
D) indenture

Question 14

What elements determine what the yield to maturity will be for a bond?

Accepted Answer

The starting point is the risk free rate

Question 15

The discount rate used to value a bond is

Accepted Answer

A) the coupon interest rate. 
B) determined by the issuing company. 
C) fixed for the life of the bond. 
D) the market rate of interest. 
A) the coupon interest rate. 
B) determined by the issuing company. 
C) fixed for the life of the bond. 
D) the market rate of interest.

Question 16

What is the value of a bond that matures in three years,has an annual coupon payment of $110,and a par value of $1,000? Assume a required rate of return of 11%,and round your answer to the nearest $10.

Accepted Answer

A) $970 
B) $1,330 
C) $330 
D) $1,000 
A) $970 
B) $1,330 
C) $330 
D) $1,000

Question 17

As interest rates,and consequently investors' required rates of return,change over time,the ________ of outstanding bonds will also change.

Accepted Answer

A) maturity date 
B) coupon interest payment 
C) par value 
D) price 
A) maturity date 
B) coupon interest payment 
C) par value 
D) price

Question 18

Corporate debt can be privately placed with

Accepted Answer

A) union pension funds. 
B) life insurance companies. 
C) state pension funds. 
D) all of the above 
A) union pension funds. 
B) life insurance companies. 
C) state pension funds. 
D) all of the above

Question 19

If current market interest rates fall,what will happen to the value of outstanding bonds?

Accepted Answer

A) It will rise. 
B) It will fall. 
C) It will remain unchanged. 
D) There is no connection between current market interest rates and the value of outstanding bonds. 
A) It will rise. 
B) It will fall. 
C) It will remain unchanged. 
D) There is no connection between current market interest rates and the value of outstanding bonds.

Question 20

Advantages to borrowing in the private market include

Accepted Answer

A) less restrictive covenants. 
B) reduced initial costs. 
C) lower interest costs. 
D) avoiding future SEC registration. 
A) less restrictive covenants. 
B) reduced initial costs. 
C) lower interest costs. 
D) avoiding future SEC registration.

Pursuant to the Fisher Effect,the real interest rate is exactly equal to the nominal interest rate less the rate of inflation.

The sensitivity of a bond's value to changing interest rates depends on both the bond's time to maturity and its pattern of cash flows.

Which of the following statements is true?

Given the following information,determine the market value of EAO Company bonds. Par value $1,000 Coupon rate 10% Years to maturity 6 Market rate 8% Interest paid semiannually

BCD's $1,000 par value bonds currently sell for $798.50.The coupon rate is 10%,paid semiannually.If the bonds have five years before maturity,what is the yield to maturity or expected rate of return?

Which of the following statements about bonds is true?

A bond investor seeking capital gains should purchase

Generic,Inc.has bonds outstanding that mature in 20 years.The bonds have $1,000 par value,pay interest annually at a rate of 10%,and have a current selling price of $875.25.The current yield on the bonds is 11.63%.

Which of the following statements about bonds is true?

As the time to maturity increases,the maturity premium increases.

A $1,000 par value 10-year bond with a 10% coupon rate recently sold for $900.The yield to maturity

So long as a bond sells for an amount above its par value,the coupon interest rate and yield to maturity remain equal.

A(n)________ is used to outline the issuing company's contractual obligations to bondholders.

What elements determine what the yield to maturity will be for a bond?

The discount rate used to value a bond is

What is the value of a bond that matures in three years,has an annual coupon payment of $110,and a par value of $1,000? Assume a required rate of return of 11%,and round your answer to the nearest $10.

As interest rates,and consequently investors' required rates of return,change over time,the ________ of outstanding bonds will also change.

Corporate debt can be privately placed with

If current market interest rates fall,what will happen to the value of outstanding bonds?

Advantages to borrowing in the private market include

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements,taxes,and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters

Exam 9: Debt Valuation and Interest Rates

Pursuant to the Fisher Effect,the real interest rate is exactly equal to the nominal interest rate less the rate of inflation.

The sensitivity of a bond's value to changing interest rates depends on both the bond's time to maturity and its pattern of cash flows.

Which of the following statements is true?

Given the following information,determine the market value of EAO Company bonds. Par value $1,000 Coupon rate 10% Years to maturity 6 Market rate 8% Interest paid semiannually

BCD's $1,000 par value bonds currently sell for $798.50.The coupon rate is 10%,paid semiannually.If the bonds have five years before maturity,what is the yield to maturity or expected rate of return?

Which of the following statements about bonds is true?

A bond investor seeking capital gains should purchase

Generic,Inc.has bonds outstanding that mature in 20 years.The bonds have $1,000 par value,pay interest annually at a rate of 10%,and have a current selling price of $875.25.The current yield on the bonds is 11.63%.

Which of the following statements about bonds is true?

As the time to maturity increases,the maturity premium increases.

A $1,000 par value 10-year bond with a 10% coupon rate recently sold for $900.The yield to maturity

So long as a bond sells for an amount above its par value,the coupon interest rate and yield to maturity remain equal.

A(n)________ is used to outline the issuing company's contractual obligations to bondholders.

What elements determine what the yield to maturity will be for a bond?

The discount rate used to value a bond is

What is the value of a bond that matures in three years,has an annual coupon payment of $110,and a par value of $1,000? Assume a required rate of return of 11%,and round your answer to the nearest $10.

As interest rates,and consequently investors' required rates of return,change over time,the ________ of outstanding bonds will also change.

Corporate debt can be privately placed with

If current market interest rates fall,what will happen to the value of outstanding bonds?

Advantages to borrowing in the private market include

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements,taxes,and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters