Question 1

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

Accepted Answer

A) True 
 B)False  True

Question 2

You purchased Photon, Inc. bonds exactly one year ago today for $875. During the latest year, you received $65 in interest on the bonds. The current yield on these bonds is 6.5%.

Accepted Answer

A) True 
 B)False  False

Question 3

Bonds cannot be worth less than their book value.

Accepted Answer

A) True 
 B)False  False

Question 4

Durand Chemicals with headquarters in Delaware issues bonds in France with interest and principal payable in U.S. dollars. This bond is

Accepted Answer

A)  a convertible bond. 
B)  a Eurobond. 
C)  a discounted bond. 
D)  a subordinated debenture. 
A)  a convertible bond. 
B)  a Eurobond. 
C)  a discounted bond. 
D)  a subordinated debenture.

Question 5

Logan bought a bond that matures in 10 years and pays 6% interest. The bond had a face value of $10,000. He received 10 annual payments of $1,358.68. This bond was

Accepted Answer

A)  a mortgage bond. 
B)  an amortizing bond. 
C)  a zero coupon bond. 
D)  a Eurobond. 
A)  a mortgage bond. 
B)  an amortizing bond. 
C)  a zero coupon bond. 
D)  a Eurobond.

Question 6

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

Accepted Answer

A)  approximately $1,030. 
B)  approximately $1,000. 
C)  approximately $1,060. 
D)  The price cannot be estimated without knowing the market rate of interest. 
A)  approximately $1,030. 
B)  approximately $1,000. 
C)  approximately $1,060. 
D)  The price cannot be estimated without knowing the market rate of interest.

Question 7

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 8

MI has a $1,000 par value, 30-year bond outstanding that was issued 20 years ago at an annual coupon rate of 10%, paid semiannually. Market interest rates on similar bonds are 7%. Calculate the bond's price.

Accepted Answer

A)  $956.42 
B)  $1,000.00 
C)  $1,168.31 
D)  $1,213.19 
A)  $956.42 
B)  $1,000.00 
C)  $1,168.31 
D)  $1,213.19

Question 9

If the market price of a bond increases, then

Accepted Answer

A)  the yield to maturity decreases. 
B)  the coupon rate increases. 
C)  the yield to maturity increases. 
D)  none of the above. 
A)  the yield to maturity decreases. 
B)  the coupon rate increases. 
C)  the yield to maturity increases. 
D)  none of the above.

Question 10

The sensitivity of a bond's value to changing interest rates depends on both the bond's time to maturity and its pattern of cash flows.

Accepted Answer

A) True 
 B)False

Question 11

Debentures are unsecured long-term debt.

Accepted Answer

A) True 
 B)False

Question 12

Six years ago, Colt, Inc. sold an issue of 30-year, $1,000 par value bonds. The coupon rate of 5.25% is payable annually. Investors presently require a rate of return of 8.375%. What is the current market price (intrinsic value) of the bonds? Round off to the nearest $1.

Accepted Answer

A)  $1,050 
B)  $932 
C)  $681 
D)  $1,111 
A)  $1,050 
B)  $932 
C)  $681 
D)  $1,111

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

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

Question 15

Which of the following statements about bonds is true?

Accepted Answer

A)  Bond prices move in the same direction as market interest rates. 
B)  If market interest rates change, long-term bonds will fluctuate more in value than short-term bonds. 
C)  Long-term bonds are less risky than short-term bonds. 
D)  If market interest rates are higher than a bond's coupon interest rate, then the bond will sell above its par value. 
E)  None of the above. 
A)  Bond prices move in the same direction as market interest rates. 
B)  If market interest rates change, long-term bonds will fluctuate more in value than short-term bonds. 
C)  Long-term bonds are less risky than short-term bonds. 
D)  If market interest rates are higher than a bond's coupon interest rate, then the bond will sell above its par value. 
E)  None of the above.

Question 16

Reindeer Corp. plans to issue bonds to expand operations. The bonds will have a par value of $1,000, a 10-year maturity, and a coupon interest rate of 9%, paid semiannually. Current market conditions are such that the bonds will be sold to net $937.79. The yield-to-maturity of these bonds is 10.65%.

Accepted Answer

A) True 
 B)False

Question 17

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).

Accepted Answer

r = R + i

Question 18

Any unsecured long-term debt instrument is a debenture.

Accepted Answer

A) True 
 B)False

Question 19

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 20

A bond that is held to maturity

Accepted Answer

A)  will necessarily have a yield to maturity equal to the coupon rate. 
B)  will necessarily earn the yield to maturity at the time of purchase. 
C)  may earn more or less that its yield to maturity at the time of purchase because the rate at which coupons can be reinvested may change. 
D)  will earn the yield to maturity at the date of maturity. 
A)  will necessarily have a yield to maturity equal to the coupon rate. 
B)  will necessarily earn the yield to maturity at the time of purchase. 
C)  may earn more or less that its yield to maturity at the time of purchase because the rate at which coupons can be reinvested may change. 
D)  will earn the yield to maturity at the date of maturity.

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

You purchased Photon, Inc. bonds exactly one year ago today for $875. During the latest year, you received $65 in interest on the bonds. The current yield on these bonds is 6.5%.

Bonds cannot be worth less than their book value.

Durand Chemicals with headquarters in Delaware issues bonds in France with interest and principal payable in U.S. dollars. This bond is

Logan bought a bond that matures in 10 years and pays 6% interest. The bond had a face value of $10,000. He received 10 annual payments of $1,358.68. This bond was

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

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.

MI has a $1,000 par value, 30-year bond outstanding that was issued 20 years ago at an annual coupon rate of 10%, paid semiannually. Market interest rates on similar bonds are 7%. Calculate the bond's price.

If the market price of a bond increases, then

The sensitivity of a bond's value to changing interest rates depends on both the bond's time to maturity and its pattern of cash flows.

Debentures are unsecured long-term debt.

Six years ago, Colt, Inc. sold an issue of 30-year, $1,000 par value bonds. The coupon rate of 5.25% is payable annually. Investors presently require a rate of return of 8.375%. What is the current market price (intrinsic value) of the bonds? Round off to the nearest $1.

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)

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

Which of the following statements about bonds is true?

Reindeer Corp. plans to issue bonds to expand operations. The bonds will have a par value of $1,000, a 10-year maturity, and a coupon interest rate of 9%, paid semiannually. Current market conditions are such that the bonds will be sold to net $937.79. The yield-to-maturity of these bonds is 10.65%.

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).

Any unsecured long-term debt instrument is a debenture.

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

A bond that is held to maturity

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

Exam 9: Debt Valuation and Interest Rates

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

You purchased Photon, Inc. bonds exactly one year ago today for $875. During the latest year, you received $65 in interest on the bonds. The current yield on these bonds is 6.5%.

Bonds cannot be worth less than their book value.

Durand Chemicals with headquarters in Delaware issues bonds in France with interest and principal payable in U.S. dollars. This bond is

Logan bought a bond that matures in 10 years and pays 6% interest. The bond had a face value of $10,000. He received 10 annual payments of $1,358.68. This bond was

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

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.

MI has a $1,000 par value, 30-year bond outstanding that was issued 20 years ago at an annual coupon rate of 10%, paid semiannually. Market interest rates on similar bonds are 7%. Calculate the bond's price.

If the market price of a bond increases, then

The sensitivity of a bond's value to changing interest rates depends on both the bond's time to maturity and its pattern of cash flows.

Debentures are unsecured long-term debt.

Six years ago, Colt, Inc. sold an issue of 30-year, $1,000 par value bonds. The coupon rate of 5.25% is payable annually. Investors presently require a rate of return of 8.375%. What is the current market price (intrinsic value) of the bonds? Round off to the nearest $1.

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)

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

Which of the following statements about bonds is true?

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).

Any unsecured long-term debt instrument is a debenture.

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

A bond that is held to maturity

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