Exam 5: Bonds, bond valuation, and interest rates

Assume that a 10-year Treasury bond has a 12% annual coupon, while a 15-year T-bond has an 8% annual coupon.Assume also that the yield curve is flat, and all Treasury securities have a 10% yield to maturity.Which of the following statements is CORRECT?

A 10-year corporate bond has an annual coupon of 9%.The bond is currently selling at par ($1, 000).Which of the following statements is NOT CORRECT?

One year ago Lerner and Luckmann Co.issued 15-year, noncallable, 7.5% annual coupon bonds at their par value of $1, 000.Today, the market interest rate on these bonds is 5.5%.What is the current price of the bonds, given that they now have 14 years to maturity?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

For bonds, price sensitivity to a given change in interest rates is generally greater the longer before the bond matures.

As a general rule, a company's debentures have higher required interest rates than its mortgage bonds because mortgage bonds are backed by specific assets while debentures are unsecured.

Listed below are some provisions that are often contained in bond indentures.Which of these provisions, viewed alone, would tend to reduce the yield to maturity that investors would otherwise require on a newly issued bond? 1)Fixed assets are used as security for a bond. 2)A given bond is subordinated to other classes of debt. 3)The bond can be converted into the firm's common stock. 4)The bond has a sinking fund. 5)The bond has a call provision. 6)The indenture contains covenants that prevent the use of additional debt.

Which of the following statements is CORRECT?

A bond that had a 20-year original maturity with 1 year left to maturity has more interest rate price risk than a 10-year original maturity bond with 1 year left to maturity.(Assume that the bonds have equal default risk and equal coupon rates, and they cannot be called.)

Which of the following statements is CORRECT?

Which of the following statements is NOT CORRECT?

Which of the following statements is CORRECT?

Ranger Inc.would like to issue new 20-year bonds.Initially, the plan was to make the bonds non-callable.If the bonds were made callable after 5 years at a 5% call premium, how would this affect their required rate of return?

Cornwall Corporation is planning to raise $1, 000, 000 to finance a new plant.Which of the following statements is CORRECT?

If the required rate of return on a bond (rd)is greater than its coupon interest rate and will remain above that rate, then the market value of the bond will always be below its par value until the bond matures, at which time its market value will equal its par value.(Accrued interest between interest payment dates should not be considered when answering this question.)

Meacham Enterprises' bonds currently sell for $1, 280 and have a par value of $1, 000.They pay a $135 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1, 050.What is their yield to call (YTC)?

Which of the following statements is CORRECT?

Assuming all else is constant, which of the following statements is CORRECT?