Exam 9: Debt Valuation and Interest Rates

The higher the bond rating,the more default risk associated with the bond.

Garvin,Inc.'s bonds have a par value of $1,000.The bonds pay semiannual interest of $40 and mature in five years. a.How much would you pay for Garvin bonds if your required rate of return is 10%? b.How much would you pay if your required rate of return is 8%?

A bond's "spread" refers to the difference between it's Moody's rating and its Standard & Poors rating.

Zero coupon bonds are disadvantageous to the issuing firm if interest rates fall.

Debentures are unsecured long-term debt.

As the maturity date of a bond approaches,the bond's market value approaches its par value.

Shorter-term bonds have greater interest rate risk than do longer-term bonds.

Marshall Manufacturing has a bond outstanding that was issued 20 years ago at a coupon rate of 9%.The $1,000 par value bond pays interest semiannually and was originally issued with a term of 30 years.If today's interest rate is 14%,what is the value of the bond today?

A AAA rated bond's yield to maturity will be very close to it's expected yield.

A bond's value equals the present value of interest and principal the owner will receive.

The par value of a corporate bond indicates the level of interest payments that will be paid to investors.

Bonds with ratings lower than Standard & Poor's BBB or Moody's Baa are classified as

What is the expected rate of return on a bond that pays a coupon rate of 9% paid semi-annually,has a par value of $1,000,matures in five years,and is currently selling for $1071?

Terminator Bug Company bonds have a 14% coupon rate.Interest is paid semiannually.The bonds have a par value of $1,000 and will mature 10 years from now.Compute the value of Terminator bonds if investors' required rate of return is 12%.

If you are willing to pay $1,392.05 for a 15-year,$1,000 par value bond that pays 10% interest semiannually,what is your expected rate of return?

Government bonds have lower yield to maturity than do corporate bonds of the same maturity because the ________ premium is lower for government bonds.

Investment grade bonds are rated BB or lower.

The current yield is the average rate of interest a bond will from the time of purchase until it matures.

Which of the following is generally NOT a characteristic of a bond?

If the market price of a bond increases,then