Question 1

Junk bonds:

Accepted Answer

A) are high yield bonds. 
B) have higher default risk. 
C) were used to finance "fallen angels." 
D) all of the above.

Question 2

Marshall Manufacturing has a bond outstanding that was issued 20 years ago at a coupon rate of 9%.The $1,000 par value bond pays interest semiannually and was originally issued with a term of 30 years.If today's interest rate is 14%,what is the value of the bond today?

Accepted Answer

A) $654.98 
B) $735.15 
C) $814.42 
D) $941.87

Question 3

Dry Seal plans to issue bonds to expand operations.The bonds will have a par value of $1,000,a 10-year maturity,and a coupon interest rate of 9%,paid semiannually.Current market conditions are such that the bonds will be sold to net $937.79.What is the yield-to-maturity of these bonds?

Accepted Answer

A) 11% 
B) 10% 
C) 9% 
D) 8% 
E) 7%

Question 4

Which of the following statements about bonds is true?

Accepted Answer

A) Bond prices move in the same direction as market interest rates. 
B) If market interest rates change,long-term bonds will fluctuate more in value than short-term bonds. 
C) Long-term bonds are less risky than short-term bonds. 
D) If market interest rates are higher than a bond's coupon interest rate,then the bond will sell above its par value. 
E) None of the above.

Question 5

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 6

If provided the nominal rate of interest (r)of 14.2% and the anticipated rate of inflation (i)of 5.5%,what is the real rate of interest (R)?

Accepted Answer

The answer of If provided the nominal rate of interest...

Question 7

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) 11.76%. 
C) 10.12%. 
D) 11.29%.

Question 8

Eurobonds:

Accepted Answer

A) are registered with the SEC. 
B) are frequently offered to U.S.citizens and residents during their initial distribution. 
C) take relatively longer periods of time to issue. 
D) have none of the above characteristics.

Question 9

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

Accepted Answer

A) True 
 B)False

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

Question 11

Junk bonds are rated BB or higher.

Accepted Answer

A) True 
 B)False

Question 12

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 13

Which of the following statements is true?

Accepted Answer

A) When investors' required rate of return equals the bond's coupon rate,then the market value of the bond may be selling at par value. 
B) When investors' required rate of return exceeds the bond's coupon rate,then the market value of the bond will be greater than par value. 
C) When investors' required rate of return is less than the bond's coupon rate,then market value of the bond will be greater than par value. 
D) When investors' required rate of return is less than the bond's coupon rate,then the market value of the bond will be less than par value.

Question 14

Assume that you wish to purchase a 30-year bond that has a maturity value of $1,000 and a coupon interest rate of 9.5%,paid semiannually.If you require a 6.75% rate of return on this investment,what is the maximum price that you should be willing to pay for this bond?

Accepted Answer

A) $1,111 
B) $1,450 
C) $1,352 
D) $675 
E) $1,000

Question 15

The issuance of bonds to raise capital for a corporation:

Accepted Answer

A) magnifies the returns to the stockholders. 
B) increases risk to the stockholders. 
C) is a cheaper form of capital than the issuance of common stock. 
D) all of the above. 
E) none of the above.

Question 16

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?

Accepted Answer

A) 15.80% 
B) 10.47% 
C) 9.24% 
D) 7.90% 
E) 4.62%

Question 17

You paid $865.50 for a corporate bond that has a 6.75% coupon rate.What is the bond's current yield?

Accepted Answer

A) 8.375% 
B) 7.800% 
C) 15.001% 
D) 6.667%

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Beta,Inc.has bonds outstanding that mature in 10 years.The bonds have $1,000 par value and pay interest annually at a rate of 10%,which is also the current required rate of return on the bonds.The bonds' duration is:

Accepted Answer

A) 10.00. 
B) 6.76. 
C) 5. 
D) unable to be determined based on the information given.

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 9: Debt Valuation and Interest Rates

Junk bonds:

Marshall Manufacturing has a bond outstanding that was issued 20 years ago at a coupon rate of 9%.The $1,000 par value bond pays interest semiannually and was originally issued with a term of 30 years.If today's interest rate is 14%,what is the value of the bond today?

Dry Seal plans to issue bonds to expand operations.The bonds will have a par value of $1,000,a 10-year maturity,and a coupon interest rate of 9%,paid semiannually.Current market conditions are such that the bonds will be sold to net $937.79.What is the yield-to-maturity of these bonds?

Which of the following statements about bonds is true?

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

If provided the nominal rate of interest (r)of 14.2% and the anticipated rate of inflation (i)of 5.5%,what is the real rate of interest (R)?

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) :

Eurobonds:

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

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%.

Junk bonds are rated BB or higher.

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

Which of the following statements is true?

Assume that you wish to purchase a 30-year bond that has a maturity value of $1,000 and a coupon interest rate of 9.5%,paid semiannually.If you require a 6.75% rate of return on this investment,what is the maximum price that you should be willing to pay for this bond?

The issuance of bonds to raise capital for a corporation:

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?

You paid $865.50 for a corporate bond that has a 6.75% coupon rate.What is the bond's current yield?

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

Beta,Inc.has bonds outstanding that mature in 10 years.The bonds have $1,000 par value and pay interest annually at a rate of 10%,which is also the current required rate of return on the bonds.The bonds' duration is:

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