Question 1

Why does a bond sell at a discount when the coupon rate is lower than the required rate of return and vice versa?

Accepted Answer

The answer of Why does a bond sell at a...

Question 2

In the present value bond valuation model,risk is generally incorporated into the

Accepted Answer

A)  maturity amount. 
B)  timing of cash flows (assuming more risky cash flows are received early). 
C)  discount rate or required return. 
D)  cash flows (making some smaller if they are more risky).

Question 3

Assume that Bunch Inc.has an issue of 18-year $1,000 par value bonds that pay 7% interest,annually.Further assume that today's required rate of return on these bonds is 5%.How much would these bonds sell for today? Round off to the nearest $1.

Accepted Answer

A)  $1,233.79 
B)  $1,201.32 
C)  $1,134.88 
D)  $1,032.56

Question 4

The Johnson Corporation issues a bond which has a coupon rate of 10.20%,a yield to maturity of 10.55%,a face value of $1,000,and a market price of $850.Therefore,the annual interest payment is

Accepted Answer

A)  $101.75. 
B)  $102. 
C)  $105.50. 
D)  $120.0.

Question 5

Valley Manufacturing Inc.just issued $1,000 par 20-year bonds.The bonds sold for $758.18 and pay interest semiannually.Investors require a rate of 9% on the bonds.What is the bonds' coupon rate?

Accepted Answer

A)  6% 
B)  7% 
C)  8% 
D)  9%

Question 6

The yield-to-maturity is the discount rate that equates the present value of the interest and principal payments with the face value of the bond.

Accepted Answer

A) True 
 B)False

Question 7

Messenger,Inc.bonds have a 4% coupon rate with semiannual coupon payments and a $1,000 par value.The bonds have 11 years until maturity,and sell for $925.What is the current yield for Messenger's bonds?

Accepted Answer

A)  2.16% 
B)  3.45% 
C)  4.32% 
D)  5.52%

Question 8

In 2000 Jenson Inc.issued bonds with an 8 percent coupon rate and a $1,000 face value.The bonds mature on March 1,2025.If an investor purchased one of these bonds on March 1,2012,determine the yield to maturity if the investor paid $1,100 for the bond.

Accepted Answer

A)  7% 
B)  The yield to maturity is $900 ($1,000 interest less $100 capital loss). 
C)  The yield to maturity must be greater than 8% because the price paid for the bond exceeds the face value. 
D)  5.4%

Question 9

If market interest rates rise

Accepted Answer

A)  short-term bonds will decline in value more than long-term bonds. 
B)  short-term bonds will rise in value more than long-term bonds. 
C)  long-term bonds will decline in value more than short-term bonds. 
D)  long-term bonds will rise in value more than short-term bonds.

Question 10

The value of a bond is the present value of both the future interest to be received and the price of the bond.

Accepted Answer

A) True 
 B)False

Question 11

An example of a Eurobond is a bond issued in Asia by a U.S.Corporation with interest and principal payments made in U.S.dollars.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements is true?

Accepted Answer

A)  Short-term bonds have greater interest rate risk than do long-term bonds. 
B)  Long-term bonds have greater interest rate risk than do short-term bonds. 
C)  All bonds have equal interest rate risk. 
D)  Interest rate risk is highest during periods of high interest rates.

Question 13

A Johnson corporation bond is currently selling for $850.The bond matures in 20 years,has a face value of $1,000,and a yield to maturity of 14.30%.The bond's coupon rate is

Accepted Answer

A)  10%. 
B)  11%. 
C)  12%. 
D)  13%.

Question 14

Both Investor A and Investor B are considering the purchase of Corporation FJR bonds.The bonds are selling at a price of $1,100 each.Investor A decides to buy the bonds and Investor B does not buy the bonds.

Accepted Answer

A)  Investor A must have a required return lower than the required return for Investor B. 
B)  The yield to maturity for Investor A must be higher than the yield to maturity for Investor B. 
C)  The yield to maturity for Investor A must be less than the yield to maturity for Investor B. 
D)  The yield to maturity for this bond must be higher than the coupon rate.

Question 15

Why would a convertible bond increase much more in value than a bond that is not convertible?

Accepted Answer

The answer of Why would a convertible bond increase much...

Question 16

A bond will sell at a premium (above par value)if

Accepted Answer

A)  the market value of the bond is greater than the discount rate of the bond. 
B)  investor's current required rate of return is below the coupon rate of the bond. 
C)  current market interest rates are moving in the same direction as bond values. 
D)  the economy is in a recession.

Question 17

FYI bonds have a par value of $1,000.The bonds pay $40 in interest every six months and will mature in 10 years.
a.Calculate the price if the yield to maturity on the bonds is 7,8,and 9 percent,respectively.
b.Explain the impact on price if the required rate of return decreases.
c.Compute the coupon rate on the bonds.How does the relationship between the coupon rate and the yield to maturity determine how a bond's price will compare to it par value?

Accepted Answer

The answer of FYI bonds have a par value of...

Question 18

A firm's bond rating would be favorably affected if they have a low use of financial leverage (debt).

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A)  maturity date 
B)  coupon interest payment 
C)  par value 
D)  price

Question 20

GAT,Inc.has issued a $1,000 par 4% annual coupon bond that is to mature in 18 years.If your required rate of return is 6.5%,what price would you be willing to pay for the bond?

Accepted Answer

The answer of GAT,Inc.has issued a $1,000 par 4% annual...

Exam 7: The Valuation and Characteristics of Bonds

Why does a bond sell at a discount when the coupon rate is lower than the required rate of return and vice versa?

In the present value bond valuation model,risk is generally incorporated into the

Assume that Bunch Inc.has an issue of 18-year $1,000 par value bonds that pay 7% interest,annually.Further assume that today's required rate of return on these bonds is 5%.How much would these bonds sell for today? Round off to the nearest $1.

The Johnson Corporation issues a bond which has a coupon rate of 10.20%,a yield to maturity of 10.55%,a face value of $1,000,and a market price of $850.Therefore,the annual interest payment is

Valley Manufacturing Inc.just issued $1,000 par 20-year bonds.The bonds sold for $758.18 and pay interest semiannually.Investors require a rate of 9% on the bonds.What is the bonds' coupon rate?

The yield-to-maturity is the discount rate that equates the present value of the interest and principal payments with the face value of the bond.

Messenger,Inc.bonds have a 4% coupon rate with semiannual coupon payments and a $1,000 par value.The bonds have 11 years until maturity,and sell for $925.What is the current yield for Messenger's bonds?

In 2000 Jenson Inc.issued bonds with an 8 percent coupon rate and a $1,000 face value.The bonds mature on March 1,2025.If an investor purchased one of these bonds on March 1,2012,determine the yield to maturity if the investor paid $1,100 for the bond.

If market interest rates rise

The value of a bond is the present value of both the future interest to be received and the price of the bond.

An example of a Eurobond is a bond issued in Asia by a U.S.Corporation with interest and principal payments made in U.S.dollars.

Which of the following statements is true?

A Johnson corporation bond is currently selling for $850.The bond matures in 20 years,has a face value of $1,000,and a yield to maturity of 14.30%.The bond's coupon rate is

Both Investor A and Investor B are considering the purchase of Corporation FJR bonds.The bonds are selling at a price of $1,100 each.Investor A decides to buy the bonds and Investor B does not buy the bonds.

Why would a convertible bond increase much more in value than a bond that is not convertible?

A bond will sell at a premium (above par value) if

A firm's bond rating would be favorably affected if they have a low use of financial leverage (debt).

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

GAT,Inc.has issued a $1,000 par 4% annual coupon bond that is to mature in 18 years.If your required rate of return is 6.5%,what price would you be willing to pay for the bond?