Question 1

As investors' required rate of return on a bond increases, the value of the bond increases also.

Accepted Answer

A) True 
 B)False

Question 2

A bond's "spread" refers to the difference between it's Moody's rating and its Standard & Poors rating.

Accepted Answer

A) True 
 B)False

Question 3

You are considering the purchase of Hytec bonds that were issued 14 years ago. When the bonds were originally sold, they had a 30-year maturity and a 14.375% coupon interest rate that is payable semiannually. The bond is currently selling for $1,508.72. What is the yield to maturity on the bonds?

Accepted Answer

A)  8.50% 
B)  14.38% 
C)  11.11% 
D)  7.67% 
A)  8.50% 
B)  14.38% 
C)  11.11% 
D)  7.67%

Question 4

Investment grade bonds are rated BB or lower.

Accepted Answer

A) True 
 B)False

Question 5

The current yield of a bond will equal its coupon rate when the bond is selling at par value.

Accepted Answer

A) True 
 B)False

Question 6

Bonds with a longer time to maturity have less interest rate risk.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements about bonds is true?

Accepted Answer

A)  If market interest rates are below a bond's coupon interest rate, then the bond will sell above its par value. 
B)  Long-term bonds have less interest rate risk than do short-term bonds. 
C)  Bond prices move in the same direction as market interest rates. 
D)  As the maturity date of a bond approaches, the market value of a bond will become more volatile. 
A)  If market interest rates are below a bond's coupon interest rate, then the bond will sell above its par value. 
B)  Long-term bonds have less interest rate risk than do short-term bonds. 
C)  Bond prices move in the same direction as market interest rates. 
D)  As the maturity date of a bond approaches, the market value of a bond will become more volatile.

Question 8

BCD's $1,000 par value bonds currently sell for $798.50. The coupon rate is 10%, paid semiannually. If the bonds have five years before maturity, what is the yield to maturity or expected rate of return?

Accepted Answer

N=10, PV=-798.50, PM

Question 9

A(n) ________ is used to outline the issuing company's contractual obligations to bondholders.

Accepted Answer

A)  mortgage 
B)  debenture 
C)  bond rating 
D)  indenture 
A)  mortgage 
B)  debenture 
C)  bond rating 
D)  indenture

Question 10

Bond ratings directly affect a bond's

Accepted Answer

A)  spread over the Treasury yield. 
B)  coupon rate. 
C)  maturity date. 
D)  call provisions. 
A)  spread over the Treasury yield. 
B)  coupon rate. 
C)  maturity date. 
D)  call provisions.

Question 11

The current yield is the average rate of interest a bond will from the time of purchase until it matures.

Accepted Answer

A) True 
 B)False

Question 12

Quirk Drugs sold an issue of 30-year, $1,000 par value bonds to the public that carry a 10.85% coupon rate, payable semiannually. It is now 10 years later, and the current market rate of interest is 9.00%. If interest rates remain at 9.00% until Quirk's bonds mature, what will happen to the value of the bonds over time?

Accepted Answer

A)  The bonds will sell at a premium and decline in value until maturity. 
B)  The bonds will sell at a discount and rise in value until maturity. 
C)  The bonds will sell at a premium and rise in value until maturity. 
D)  The bonds will sell at a discount and fall in value until maturity. 
A)  The bonds will sell at a premium and decline in value until maturity. 
B)  The bonds will sell at a discount and rise in value until maturity. 
C)  The bonds will sell at a premium and rise in value until maturity. 
D)  The bonds will sell at a discount and fall in value until maturity.

Question 13

When a bond's cash flows are discounted at the yield to maturity their present value will equal the purchase price.

Accepted Answer

A) True 
 B)False

Question 14

Jordan bought a bond that paid 4% interest for $675.56. Ten years later, he received $1,000. This bond was

Accepted Answer

A)  a discount bond. 
B)  a convertible bond. 
C)  a self-amortizing bond. 
D)  a zero coupon bond. 
A)  a discount bond. 
B)  a convertible bond. 
C)  a self-amortizing bond. 
D)  a zero coupon bond.

Question 15

When a bond's coupon rate is higher than the required rate of return, the bond

Accepted Answer

A)  will sell at a discount from par. 
B)  will sell at a premium over par 
C)  may sell at either a discount or a premium. 
D)  will sell at par value. 
A)  will sell at a discount from par. 
B)  will sell at a premium over par 
C)  may sell at either a discount or a premium. 
D)  will sell at par value.

Question 16

What is the expected rate of return on a bond that pays a coupon rate of 9% paid semi-annually, has a par value of $1,000, matures in five years, and is currently selling for $1071?

Accepted Answer

A)  7.28% 
B)  8.40% 
C)  3.64% 
D)  4.21% 
A)  7.28% 
B)  8.40% 
C)  3.64% 
D)  4.21%

Question 17

Interest rates have increased by 50 basis points (0.5%). Which of the following bonds will decline most in price? All of the bonds have AA ratings.

Accepted Answer

A)  A bond that matures in 10 days 
B)  A bond that matures in 5 years 
C)  A bond that matures in 10 years. 
D)  All of the bonds will decline in price by approximately the same amount. 
A)  A bond that matures in 10 days 
B)  A bond that matures in 5 years 
C)  A bond that matures in 10 years. 
D)  All of the bonds will decline in price by approximately the same amount.

Question 18

Zero coupon bonds are disadvantageous to the issuing firm if interest rates fall.

Accepted Answer

A) True 
 B)False

Question 19

Cassel Corp. bonds pay an annual coupon rate of 10%. If investors' required rate of return is now 8% on these bonds, they will be priced at

Accepted Answer

A)  par value. 
B)  a premium to par value. 
C)  a discount to par value. 
D)  cannot be determined from information given. 
A)  par value. 
B)  a premium to par value. 
C)  a discount to par value. 
D)  cannot be determined from information given.

Question 20

Which of the following statements about zero coupon bonds is FALSE?

Accepted Answer

A)  When the bonds mature, the issuing firm is faced with a small cash outflow relative to the cash inflow the firm receives when the bonds are initially issued. 
B)  Zero coupon bonds have lower interest rate risk than bonds with high coupons. 
C)  Zero coupon bonds are an extremely popular way for corporations to borrow money. 
D)  Most zero coupon bonds in the U.S. are government issues. 
A)  When the bonds mature, the issuing firm is faced with a small cash outflow relative to the cash inflow the firm receives when the bonds are initially issued. 
B)  Zero coupon bonds have lower interest rate risk than bonds with high coupons. 
C)  Zero coupon bonds are an extremely popular way for corporations to borrow money. 
D)  Most zero coupon bonds in the U.S. are government issues.

As investors' required rate of return on a bond increases, the value of the bond increases also.

A bond's "spread" refers to the difference between it's Moody's rating and its Standard & Poors rating.

You are considering the purchase of Hytec bonds that were issued 14 years ago. When the bonds were originally sold, they had a 30-year maturity and a 14.375% coupon interest rate that is payable semiannually. The bond is currently selling for $1,508.72. What is the yield to maturity on the bonds?

Investment grade bonds are rated BB or lower.

The current yield of a bond will equal its coupon rate when the bond is selling at par value.

Bonds with a longer time to maturity have less interest rate risk.

Which of the following statements about bonds is true?

BCD's $1,000 par value bonds currently sell for $798.50. The coupon rate is 10%, paid semiannually. If the bonds have five years before maturity, what is the yield to maturity or expected rate of return?

A(n) ________ is used to outline the issuing company's contractual obligations to bondholders.

Bond ratings directly affect a bond's

The current yield is the average rate of interest a bond will from the time of purchase until it matures.

When a bond's cash flows are discounted at the yield to maturity their present value will equal the purchase price.

Jordan bought a bond that paid 4% interest for $675.56. Ten years later, he received $1,000. This bond was

When a bond's coupon rate is higher than the required rate of return, the bond

What is the expected rate of return on a bond that pays a coupon rate of 9% paid semi-annually, has a par value of $1,000, matures in five years, and is currently selling for $1071?

Interest rates have increased by 50 basis points (0.5%). Which of the following bonds will decline most in price? All of the bonds have AA ratings.

Zero coupon bonds are disadvantageous to the issuing firm if interest rates fall.

Cassel Corp. bonds pay an annual coupon rate of 10%. If investors' required rate of return is now 8% on these bonds, they will be priced at

Which of the following statements about zero coupon bonds is FALSE?

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

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Exam 9: Debt Valuation and Interest Rates

As investors' required rate of return on a bond increases, the value of the bond increases also.

A bond's "spread" refers to the difference between it's Moody's rating and its Standard & Poors rating.

You are considering the purchase of Hytec bonds that were issued 14 years ago. When the bonds were originally sold, they had a 30-year maturity and a 14.375% coupon interest rate that is payable semiannually. The bond is currently selling for $1,508.72. What is the yield to maturity on the bonds?

Investment grade bonds are rated BB or lower.

The current yield of a bond will equal its coupon rate when the bond is selling at par value.

Bonds with a longer time to maturity have less interest rate risk.

Which of the following statements about bonds is true?

BCD's $1,000 par value bonds currently sell for $798.50. The coupon rate is 10%, paid semiannually. If the bonds have five years before maturity, what is the yield to maturity or expected rate of return?

A(n) ________ is used to outline the issuing company's contractual obligations to bondholders.

Bond ratings directly affect a bond's

The current yield is the average rate of interest a bond will from the time of purchase until it matures.

When a bond's cash flows are discounted at the yield to maturity their present value will equal the purchase price.

Jordan bought a bond that paid 4% interest for $675.56. Ten years later, he received $1,000. This bond was

When a bond's coupon rate is higher than the required rate of return, the bond

What is the expected rate of return on a bond that pays a coupon rate of 9% paid semi-annually, has a par value of $1,000, matures in five years, and is currently selling for $1071?

Interest rates have increased by 50 basis points (0.5%). Which of the following bonds will decline most in price? All of the bonds have AA ratings.

Zero coupon bonds are disadvantageous to the issuing firm if interest rates fall.

Cassel Corp. bonds pay an annual coupon rate of 10%. If investors' required rate of return is now 8% on these bonds, they will be priced at

Which of the following statements about zero coupon bonds is FALSE?

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