Exam 9: Debt Valuation and Interest Rates

Aurand, Inc. has outstanding bonds with an 8% annual coupon rate paid semiannually. The bonds have a par value of $1,000, a current price of $904, and will mature in 14 years. What is the annual yield to maturity on the bond?

The yield on a corporate bond with a 20 year maturity would include

Pursuant to the Fisher Effect, the nominal rate of interest is 5.00%, the inflation rate is 2.00% and the real rate of interest is

If you are willing to pay $1,392.05 for a 15-year, $1,000 par value bond that pays 10% interest semiannually, what is your expected rate of return?

Convertible bonds can be exchanged for the issuing firm's common stock at a price specified at the time of issue.

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

Which of the following statements is true?

The holder of a non-amortizing bonds

Bond ratings measure the interest rate risk of a given bond issue.

A bond with a face value of $1,000 has annual coupon payments of $100 and was issued seven years ago. The bond currently sells for $1,085, has eight years left to maturity. This bond's ________ must be less than 10%.

The interest on corporate bonds is typically paid

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

Shorter-term bonds have greater interest rate risk than do longer-term bonds.

Which of the following features allows a borrower to redeem or repurchase a bond issue before its maturity date?

As the maturity date of a bond approaches, the bond's market value approaches its par value.

Banks often index interest rates on short-term operating loans to

The par value of a bond

As market interest rates increase, bond prices decrease.

As interest rates, and consequently investors' required rates of return, change over time, the ________ of outstanding bonds will also change.

Caldwell, Inc. sold an issue of 30-year, $1,000 par value bonds to the public. The bonds carry a 10.85% coupon rate and pay interest semiannually. It is now 12 years later. The current market rate of interest on the Caldwell bonds is 8.45%. What is the current market price (intrinsic value) of the bonds? Round off to the nearest $1.