Exam 9: Debt Valuation and Interest Rates

Generic, Inc. has bonds outstanding that mature in 20 years. The bonds have $1,000 par value, pay interest annually at a rate of 10%, and have a current selling price of $875.25. The current yield on the bonds is 11.63%

The expected yield of a bond will be less than its yield to maturity when

Jillian has purchased AAA rated corporate bonds that will mature in 20 years . She plans to sell the bonds in 10 years as she approaches retirement age. The most significant risk she faces is

What is the yield to maturity of a nine-year bond that pays a coupon rate of 20% per year, has a $1,000 par value, and is currently priced at $1,407? Assume annual coupon payments.

The detailed legal agreement between a bond's issuer and and its trustees is known as the

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

LIBOR last week was 1.88%, this week it is 1.91%. SC Corp. has borrowed $1,000,000 from North Pole Bank at a rate of one half a percentage point above LIBOR with cap of 2.5% and a floor of 2.0%. What interest was charged to SC last week?

Calculate the value of a bond that is expected to mature in 13 years with a $1,000 face value. The interest coupon rate is 8%, and the required rate of return is 10%. Interest is paid annually.

On any given day, a bond can be issued at

The Blackburn Group has recently issued 20-year, unsecured bonds rated BB by Moody's. These bonds yield 443 basis points above the U.S. Treasury yield of 2.76%. The yield to maturity on these bonds is

Which of the following statements about bonds is true?

Brookline, Inc. just sold an issue of 30-year bonds for $1,107.20. Investors require a rate of return on these bonds of 7.75%. The bonds pay interest semiannually. What is the coupon rate of the bonds?

Liquidity risk reflects the possibility that under some market conditions, bonds may prove difficult to sell.

DAH, Inc. has issued a 12% bond that is to mature in nine years. The bond had a $1,000 par value, and interest is due to be paid semiannually. If your required rate of return is 10%, what price would you be willing to pay for the bond?

Junk bonds

The issuance of bonds to raise capital for a corporation

If current market interest rates fall, what will happen to the value of outstanding bonds?

When inflation rates go up, bond prices go up as well.

A bond is most likely to be called when the market rate is lower than the coupon rate.

Businesses that wish to issue public debt will usually seek help from