Question 1

Maturity risk and liquidity risk are equivalent terms.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements is true?

Accepted Answer

A) A bond that has a rating of AA is considered to be a junk bond. 
B) A bond will sell at a premium if the prevailing required rate of return is less than the bond's coupon rate. 
C) A zero coupon is a bond that is secured by a lien on real property. 
D) The legal document that describes all of the terms and conditions of a bond issue is called a debenture agreement. 
A) A bond that has a rating of AA is considered to be a junk bond. 
B) A bond will sell at a premium if the prevailing required rate of return is less than the bond's coupon rate. 
C) A zero coupon is a bond that is secured by a lien on real property. 
D) The legal document that describes all of the terms and conditions of a bond issue is called a debenture agreement.

Question 3

The current yield of a bond will equal its coupon rate when the bond is selling at par value.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following statements about bonds is true?

Accepted Answer

A) As the maturity date of a bond approaches,the market value of a bond will become more volatile. 
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) If market interest rates are above a bond's coupon interest rate,then the bond will sell below its par value. 
A) As the maturity date of a bond approaches,the market value of a bond will become more volatile. 
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) If market interest rates are above a bond's coupon interest rate,then the bond will sell below its par value.

Question 5

The Blackburn Group has recently issued 20-year,unsecured bonds rated BB by Moody's.These bonds yield 443 basis points above the U.S.Treasury yield of 2.76%.The yield to maturity on these bonds is

Accepted Answer

A) 4.43%. 
B) 7.19%. 
C) 12.23%. 
D) mortgage bonds. 
A) 4.43%. 
B) 7.19%. 
C) 12.23%. 
D) mortgage bonds.

Question 6

You are considering the purchase of Hytec bonds that were issued 14 years ago.When the bonds were originally sold,they had a 30-year maturity and a 14.375% coupon interest rate that is payable semiannually.The bond is currently selling for $1,508.72.What is the yield to maturity on the bonds?

Accepted Answer

A) 8.50% 
B) 14.38% 
C) 11.11% 
D) 7.67% 
A) 8.50% 
B) 14.38% 
C) 11.11% 
D) 7.67%

Question 7

The yield to maturity on a bond

Accepted Answer

A) is fixed in the indenture. 
B) is lower for higher-risk bonds. 
C) is the required return on the bond. 
D) is generally equal to the coupon interest rate. 
A) is fixed in the indenture. 
B) is lower for higher-risk bonds. 
C) is the required return on the bond. 
D) is generally equal to the coupon interest rate.

Question 8

What is the value of a bond that has a par value of $1,000,a coupon rate of $80 (annually),and matures in 11 years? Assume a required rate of return of 11%,and round your answer to the nearest $10.

Accepted Answer

A) $320.66 
B) $1,011.00 
C) $813.80 
D) $790.79 
A) $320.66 
B) $1,011.00 
C) $813.80 
D) $790.79

Question 9

When referring to bonds,expected rate of return and yield to maturity are often used interchangeably.

Accepted Answer

A) True 
 B)False

Question 10

As investors' required rate of return on a bond increases,the value of the bond increases also.

Accepted Answer

A) True 
 B)False

Question 11

You paid $865.50 for a corporate bond that has a 6.75% coupon rate.What is the bond's current yield?

Accepted Answer

A) 8.375% 
B) 7.800% 
C) 15.001% 
D) 6.667% 
A) 8.375% 
B) 7.800% 
C) 15.001% 
D) 6.667%

Question 12

A $1,000 par value bond with a 12% coupon rate currently selling for $825 has a current yield of

Accepted Answer

A) 14.55%. 
B) 12.44%. 
C) 7.27%. 
D) 5.61%. 
A) 14.55%. 
B) 12.44%. 
C) 7.27%. 
D) 5.61%.

Question 13

Colby & Company bonds pay semiannual interest of $50.They mature in 15 years and have a par value of $1,000.The market rate of interest is 8%.The market value of Colby bonds is (round to the nearest dollar)

Accepted Answer

A) $1,173. 
B) $743. 
C) $1,000. 
D) $827. 
A) $1,173. 
B) $743. 
C) $1,000. 
D) $827.

Question 14

The longer the time to maturity,the more sensitive a bond's price to changes in market interest rates.

Accepted Answer

A) True 
 B)False

Question 15

Bond ratings directly affect a bond's

Accepted Answer

A) spread over the Treasury yield. 
B) coupon rate. 
C) maturity date. 
D) call provisions. 
A) spread over the Treasury yield. 
B) coupon rate. 
C) maturity date. 
D) call provisions.

Question 16

Davis & Davis issued $1,000 par value bonds at 102.The bonds pay 12% interest annually and mature in 30 years.The market rate of interest is (round to the nearest hundredth of a percent)

Accepted Answer

A) 12.00%. 
B) 11.71%. 
C) 10.12%. 
D) 11.29%. 
A) 12.00%. 
B) 11.71%. 
C) 10.12%. 
D) 11.29%.

Question 17

Eurobonds are

Accepted Answer

A) issued in a country different from the one in whose currency the bond is denominated. 
B) issued only in Europe. 
C) the European equivalent of a junk bond. 
D) none of the above. 
A) issued in a country different from the one in whose currency the bond is denominated. 
B) issued only in Europe. 
C) the European equivalent of a junk bond. 
D) none of the above.

Question 18

Caldwell,Inc.sold an issue of 30-year,$1,000 par value bonds to the public.The bonds carry a 10.85% coupon rate and pay interest semiannually.It is now 12 years later.The current market rate of interest on the Caldwell bonds is 8.45%.What is the current market price (intrinsic value)of the bonds? Round off to the nearest $1.

Accepted Answer

A) $751 
B) $1,177 
C) $1,220 
D) $976 
A) $751 
B) $1,177 
C) $1,220 
D) $976

Question 19

Which of the following statements about zero coupon bonds is FALSE?

Accepted Answer

A) When the bonds mature,the issuing firm is faced with a small cash outflow relative to the cash inflow the firm receives when the bonds are initially issued. 
B) Zero coupon bonds have lower interest rate risk than bonds with high coupons. 
C) Zero coupon bonds are an extremely popular way for corporations to borrow money. 
D) Most zero coupon bonds in the U.S.are government issues. 
A) When the bonds mature,the issuing firm is faced with a small cash outflow relative to the cash inflow the firm receives when the bonds are initially issued. 
B) Zero coupon bonds have lower interest rate risk than bonds with high coupons. 
C) Zero coupon bonds are an extremely popular way for corporations to borrow money. 
D) Most zero coupon bonds in the U.S.are government issues.

Question 20

Which of the following bond types has the greatest risk for investors?

Accepted Answer

A) Debentures 
B) Mortgage bonds 
C) Floating rate bonds 
D) Subordinated debentures 
A) Debentures 
B) Mortgage bonds 
C) Floating rate bonds 
D) Subordinated debentures

Maturity risk and liquidity risk are equivalent terms.

Which of the following statements is true?

The current yield of a bond will equal its coupon rate when the bond is selling at par value.

Which of the following statements about bonds is true?

The Blackburn Group has recently issued 20-year,unsecured bonds rated BB by Moody's.These bonds yield 443 basis points above the U.S.Treasury yield of 2.76%.The yield to maturity on these bonds is

You are considering the purchase of Hytec bonds that were issued 14 years ago.When the bonds were originally sold,they had a 30-year maturity and a 14.375% coupon interest rate that is payable semiannually.The bond is currently selling for $1,508.72.What is the yield to maturity on the bonds?

The yield to maturity on a bond

What is the value of a bond that has a par value of $1,000,a coupon rate of $80 (annually),and matures in 11 years? Assume a required rate of return of 11%,and round your answer to the nearest $10.

When referring to bonds,expected rate of return and yield to maturity are often used interchangeably.

As investors' required rate of return on a bond increases,the value of the bond increases also.

You paid $865.50 for a corporate bond that has a 6.75% coupon rate.What is the bond's current yield?

A $1,000 par value bond with a 12% coupon rate currently selling for $825 has a current yield of

Colby & Company bonds pay semiannual interest of $50.They mature in 15 years and have a par value of $1,000.The market rate of interest is 8%.The market value of Colby bonds is (round to the nearest dollar)

The longer the time to maturity,the more sensitive a bond's price to changes in market interest rates.

Bond ratings directly affect a bond's

Davis & Davis issued $1,000 par value bonds at 102.The bonds pay 12% interest annually and mature in 30 years.The market rate of interest is (round to the nearest hundredth of a percent)

Eurobonds are

Which of the following statements about zero coupon bonds is FALSE?

Which of the following bond types has the greatest risk for investors?

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

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Exam 9: Debt Valuation and Interest Rates

Maturity risk and liquidity risk are equivalent terms.

Which of the following statements is true?

The current yield of a bond will equal its coupon rate when the bond is selling at par value.

Which of the following statements about bonds is true?

The Blackburn Group has recently issued 20-year,unsecured bonds rated BB by Moody's.These bonds yield 443 basis points above the U.S.Treasury yield of 2.76%.The yield to maturity on these bonds is

You are considering the purchase of Hytec bonds that were issued 14 years ago.When the bonds were originally sold,they had a 30-year maturity and a 14.375% coupon interest rate that is payable semiannually.The bond is currently selling for $1,508.72.What is the yield to maturity on the bonds?

The yield to maturity on a bond

What is the value of a bond that has a par value of $1,000,a coupon rate of $80 (annually),and matures in 11 years? Assume a required rate of return of 11%,and round your answer to the nearest $10.

When referring to bonds,expected rate of return and yield to maturity are often used interchangeably.

As investors' required rate of return on a bond increases,the value of the bond increases also.

You paid $865.50 for a corporate bond that has a 6.75% coupon rate.What is the bond's current yield?

A $1,000 par value bond with a 12% coupon rate currently selling for $825 has a current yield of

Colby & Company bonds pay semiannual interest of $50.They mature in 15 years and have a par value of $1,000.The market rate of interest is 8%.The market value of Colby bonds is (round to the nearest dollar)

The longer the time to maturity,the more sensitive a bond's price to changes in market interest rates.

Bond ratings directly affect a bond's

Davis & Davis issued $1,000 par value bonds at 102.The bonds pay 12% interest annually and mature in 30 years.The market rate of interest is (round to the nearest hundredth of a percent)

Eurobonds are

Which of the following statements about zero coupon bonds is FALSE?

Which of the following bond types has the greatest risk for investors?

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