Exam 5: Bonds, bond valuation, and interest rates

An 8-year Treasury bond has a 10% coupon, and a 10-year Treasury bond has an 8% coupon.Both bonds have the same yield to maturity.If the yield to maturity of both bonds increases by the same amount, which of the following statements would be CORRECT?

Junk bonds are high risk, high yield debt instruments.They are often used to finance leveraged buyouts and mergers, and to provide financing to companies of questionable financial strength.

Suppose International Digital Technologies decides to raise a total of $200 million, with $100 million as long-term debt and $100 million as common equity.The debt can be mortgage bonds or debentures, but by an iron-clad provision in its charter, the company can never raise any additional debt beyond the original $100 million.Given these conditions, which of the following statements is CORRECT?

Which of the following statements is NOT CORRECT?

Which of the following statements is CORRECT?

If a firm raises capital by selling new bonds, it is called the "issuing firm, " and the coupon rate is generally set equal to the required rate on bonds of equal risk.

Assume that the current corporate bond yield curve is upward sloping.Under this condition, then we could be sure that

Rogoff Co.'s 15-year bonds have an annual coupon rate of 9.5%.Each bond has face value of $1, 000 and makes semiannual interest payments.If you require an 11.0% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

Stephenson Co.'s 15-year bond with a face value of $1, 000 currently sells for $850.Which of the following statements is CORRECT?

Field Industries' outstanding bonds have a 25-year maturity and $1, 000 par value.Their nominal yield to maturity is 9.25%, they pay interest semiannually, and they sell at a price of $850.What is the bond's nominal (annual)coupon interest rate?

A Treasury bond has an 8% annual coupon and a 7.5% yield to maturity.Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Assume that all interest rates in the economy decline from 10% to 9%.Which of the following bonds would have the largest percentage increase in price?

Income bonds pay interest only if the issuing company actually earns the indicated interest.Thus, these securities cannot bankrupt a company, and this makes them safer from an investor's perspective than regular bonds.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Currently, Bruner Inc.'s bonds sell for $1, 250.They pay a $120 annual coupon, have a 15-year maturity, and a $1, 000 par value, but they can be called in 5 years at $1, 050.Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future.What is the difference between this bond's YTM and its YTC? (Subtract the YTC from the YTM.)

Gilligan Co.'s bonds currently sell for $1, 150.They have a 6.75% annual coupon rate and a 15-year maturity, and are callable in 6 years at $1, 067.50.Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future.Under these conditions, what rate of return should an investor expect to earn if he or she purchases these bonds, the YTC or the YTM?

If its yield to maturity declined by 1%, which of the following bonds would have the largest percentage increase in value?