Question 1

The nominal interest rate

Accepted Answer

A)  does not include inflation. 
B)  includes inflation and the real rate of interest. 
C)  ignores the Fisher effect. 
D)  is the rate at which banks lend money to other banks. 
A)  does not include inflation. 
B)  includes inflation and the real rate of interest. 
C)  ignores the Fisher effect. 
D)  is the rate at which banks lend money to other banks.

Question 2

Given the anticipated rate of inflation (i) of 6.13% and the real rate of interest (R) of 7.56%, what is the true inflation premium?

Accepted Answer

We know the inflatio

Question 3

Davis & Davis issued $1,000 par value bonds at 102. The bonds pay 12% interest annually and mature in 30 years. The market rate of interest is (round to the nearest hundredth of a percent)

Accepted Answer

A)  12.00%. 
B)  11.71%. 
C)  10.12%. 
D)  11.29%. 
A)  12.00%. 
B)  11.71%. 
C)  10.12%. 
D)  11.29%.

Question 4

The rate of return on a bond can be higher or lower than the coupon rate.

Accepted Answer

A) True 
 B)False

Question 5

A bond investor seeking capital gains should purchase

Accepted Answer

A)  bonds with short maturity dates when interest rates are expected to rise. 
B)  bonds with distant maturity dates when interest rates are expected to rise. 
C)  bonds with short maturity dates when interest rates are expected to decline. 
D)  bonds with distant maturity dates when interest rates are expected to decline. 
A)  bonds with short maturity dates when interest rates are expected to rise. 
B)  bonds with distant maturity dates when interest rates are expected to rise. 
C)  bonds with short maturity dates when interest rates are expected to decline. 
D)  bonds with distant maturity dates when interest rates are expected to decline.

Question 6

Eurobonds are bonds issued in a country different from the one in whose currency the bond is denominated.

Accepted Answer

A) True 
 B)False

Question 7

As the time to maturity increases, the maturity premium increases.

Accepted Answer

A) True 
 B)False

Question 8

Blue's Chips Inc. has a $1,000 par value bond that is currently selling for $1,300. It has an annual coupon rate of 7%, paid semiannually, and has nine years remaining until maturity. What is the annual yield to maturity on the bond? (Round to the nearest whole percentage.)

Accepted Answer

A)  3.15% 
B)  1.57% 
C)  3.12% 
D)  6.24% 
A)  3.15% 
B)  1.57% 
C)  3.12% 
D)  6.24%

Question 9

Advantages of privately placing debt include all of the following except

Accepted Answer

A)  speed. 
B)  reduced placement costs. 
C)  restrictive covenants. 
D)  flexibility. 
A)  speed. 
B)  reduced placement costs. 
C)  restrictive covenants. 
D)  flexibility.

Question 10

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%.

Accepted Answer

A)  $1,114.70 
B)  $1,149.39 
C)  $894.06 
D)  $1,000.00 
A)  $1,114.70 
B)  $1,149.39 
C)  $894.06 
D)  $1,000.00

Question 11

So long as a bond sells for an amount above its par value, the coupon interest rate and yield to maturity remain equal.

Accepted Answer

A) True 
 B)False

Question 12

A $1,000 par value 10-year bond with a 10% coupon rate recently sold for $900. The yield to maturity

Accepted Answer

A)  is 10%. 
B)  is greater than 10%. 
C)  is less than 10%. 
D)  cannot be determined. 
A)  is 10%. 
B)  is greater than 10%. 
C)  is less than 10%. 
D)  cannot be determined.

Question 13

Corporate debt can be privately placed with

Accepted Answer

A)  union pension funds. 
B)  life insurance companies 
C)  state pension funds 
D)  all of the above 
A)  union pension funds. 
B)  life insurance companies 
C)  state pension funds 
D)  all of the above

Question 14

The Fisher effect can be expressed mathematically as

Accepted Answer

A)  ( nominal rate)= (the real rate of interest) ( the inflation rate). 
B)  (1+ the nominal rate)= (1+the real rate of interest) (1 + the inflation rate). 
C)  the nominal rate)= the real rate of interest + the inflation rate). 
D)  the real rate of interest= the nominal rate - the inflation rate). 
A)  ( nominal rate)= (the real rate of interest) ( the inflation rate). 
B)  (1+ the nominal rate)= (1+the real rate of interest) (1 + the inflation rate). 
C)  the nominal rate)= the real rate of interest + the inflation rate). 
D)  the real rate of interest= the nominal rate - the inflation rate).

Question 15

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?

Accepted Answer

N=40, PV=-774.31, PM

Question 16

Compare and contrast current yield and yield to maturity.

Accepted Answer

The current yield is a measure of the on

Question 17

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

Accepted Answer

When the inflation rate increases, it me

Question 18

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

Accepted Answer

A)  interest rate risk 
B)  inflation 
C)  default 
D)  maturity 
A)  interest rate risk 
B)  inflation 
C)  default 
D)  maturity

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

All of the following affect the value of a bond EXCEPT

Accepted Answer

A)  investors' required rate of return. 
B)  the recorded value of the firm's assets. 
C)  the coupon rate of interest. 
D)  the maturity date of the bond. 
A)  investors' required rate of return. 
B)  the recorded value of the firm's assets. 
C)  the coupon rate of interest. 
D)  the maturity date of the bond.

The nominal interest rate

Given the anticipated rate of inflation (i) of 6.13% and the real rate of interest (R) of 7.56%, what is the true inflation premium?

Davis & Davis issued $1,000 par value bonds at 102. The bonds pay 12% interest annually and mature in 30 years. The market rate of interest is (round to the nearest hundredth of a percent)

The rate of return on a bond can be higher or lower than the coupon rate.

A bond investor seeking capital gains should purchase

Eurobonds are bonds issued in a country different from the one in whose currency the bond is denominated.

As the time to maturity increases, the maturity premium increases.

Blue's Chips Inc. has a $1,000 par value bond that is currently selling for $1,300. It has an annual coupon rate of 7%, paid semiannually, and has nine years remaining until maturity. What is the annual yield to maturity on the bond? (Round to the nearest whole percentage.)

Advantages of privately placing debt include all of the following except

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%.

So long as a bond sells for an amount above its par value, the coupon interest rate and yield to maturity remain equal.

A $1,000 par value 10-year bond with a 10% coupon rate recently sold for $900. The yield to maturity

Corporate debt can be privately placed with

The Fisher effect can be expressed mathematically as

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?

Compare and contrast current yield and yield to maturity.

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

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

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

All of the following affect the value of a bond EXCEPT

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

The nominal interest rate

Given the anticipated rate of inflation (i) of 6.13% and the real rate of interest (R) of 7.56%, what is the true inflation premium?

Davis & Davis issued $1,000 par value bonds at 102. The bonds pay 12% interest annually and mature in 30 years. The market rate of interest is (round to the nearest hundredth of a percent)

The rate of return on a bond can be higher or lower than the coupon rate.

A bond investor seeking capital gains should purchase

Eurobonds are bonds issued in a country different from the one in whose currency the bond is denominated.

As the time to maturity increases, the maturity premium increases.

Blue's Chips Inc. has a $1,000 par value bond that is currently selling for $1,300. It has an annual coupon rate of 7%, paid semiannually, and has nine years remaining until maturity. What is the annual yield to maturity on the bond? (Round to the nearest whole percentage.)

Advantages of privately placing debt include all of the following except

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%.

So long as a bond sells for an amount above its par value, the coupon interest rate and yield to maturity remain equal.

A $1,000 par value 10-year bond with a 10% coupon rate recently sold for $900. The yield to maturity

Corporate debt can be privately placed with

The Fisher effect can be expressed mathematically as

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?

Compare and contrast current yield and yield to maturity.

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

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

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

All of the following affect the value of a bond EXCEPT

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