Exam 9: Debt Valuation and Interest Rates

Brookline,Inc.just sold an issue of 30-year bonds for $1,107.20.Investors require a rate of return on these bonds of 7.75%.The bonds pay interest semiannually.What is the coupon rate of the bonds?

All of the following affect the value of a bond EXCEPT

The market price of a 20-year,$1,000 bond that pays 9% interest semiannually is $774.31.What is the bond's yield to maturity?

The issuance of bonds to raise capital for a corporation

Any unsecured long-term debt instrument is a debenture.

The yield on a corporate bond with a 20 year maturity would include

Explain why an increase in the inflation rate will cause the yield to maturity on a bond to increase.

If provided the nominal rate of interest (r)of 14.2% and the anticipated rate of inflation (i)of 5.5%,what is the real rate of interest (R)?

Bonds cannot be worth less than their book value.

The nominal interest rate

When a bond's coupon rate is higher than the required rate of return,the bond

What is the expected rate of return on a bond that matures in seven years,has a par value of $1,000,a coupon rate of 14%,and is currently selling for $911? Assume annual coupon payments.

The par value of a bond

Compare and contrast current yield and yield to maturity.

If the issuing company becomes insolvent,the claims of the bondholders are honored before those of preferred stockholders.

Cassel Corp.bonds pay an annual coupon rate of 10%.If investors' required rate of return is now 8% on these bonds,they will be priced at

The better the bond rating,the lower the rate of return demanded in the capital markets.

A bond has a coupon rate of 6% paid semi-annually,a par value of $1,000,and matures tomorrow.The bond will sell for

Given the anticipated rate of inflation (i)of 6.3% and the real rate of interest (R)of 4.7%,find the nominal rate of interest (r).

Why are longer-term bonds more sensitive to changes in interest rates than shorter-term bonds?