Question 1

You purchased Gibraltar Corp.bonds exactly one year ago today for $1,075.During the latest year,you received $85 in interest on the bonds.What is your current yield on these bonds?

Accepted Answer

A) 11.3% 
B) 8.5% 
C) 6.5% 
D) 7.9% 
E) 9.1%

Question 2

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 a premium and has eight years left to maturity.This bond's ________ must be less than 10%.

Accepted Answer

A) yield to maturity 
B) current yield 
C) coupon rate 
D) current yield and coupon rate 
E) yield to maturity and current yield

Question 3

Which of the following statements about debentures is FALSE?

Accepted Answer

A) The earning ability of the issuing corporation is of great concern to the bondholder. 
B) Debentures are viewed as less risky than secured bonds. 
C) Debentures must provide investors with a higher yield than secured bonds. 
D) Debentures allow the firm to issue debt and still preserve some future borrowing power.

Question 4

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? Round your answer to the nearest whole percent and assume annual coupon payments.

Accepted Answer

A) 5% 
B) 14% 
C) 12% 
D) 11%

Question 5

The market price of a 20-year,$1,000 bond that pays 9% interest semiannually is $774.31.What is the bond's yield to maturity?

Accepted Answer

The answer of The market price of a 20-year,$1,000 bond...

Question 6

Compare and contrast current yield and yield to maturity.

Accepted Answer

The answer of Compare and contrast current yield and yield...

Question 7

What is the expected rate of return on a bond that matures in seven years,has a par value of $1,000,a coupon rate of 14%,and is currently selling for $911? Round your answer to the nearest whole percent and assume annual coupon payments.

Accepted Answer

A) 13% 
B) 14% 
C) 15% 
D) 16%

Question 8

Bond ratings are usually not affected by:

Accepted Answer

A) the company's fiscal year end. 
B) profitable operations. 
C) variability in earnings. 
D) firm size.

Question 9

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.

Question 10

Which of the following statements about bonds is true?

Accepted Answer

A) The market value of a bond moves in the opposite direction of market interest rates. 
B) As the maturity date of a bond approaches,the market value of a bond will become more volatile. 
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 11

Zoro Sword Company bonds pay an annual coupon rate of 9 1/2%.They have eight years to maturity and face value,or par,of $1,000.Compute the value of Zoro bonds if investors' required rate of return is 10%.

Accepted Answer

A) $1,516.18 
B) $973.33 
C) $1,027.17 
D) $950.00

Question 12

You purchased Photon,Inc.bonds exactly one year ago today for $875.During the latest year,you received $65 in interest on the bonds.What is your current yield on these bonds?

Accepted Answer

A) 11.3% 
B) 7.4% 
C) 6.5% 
D) 10.5% 
E) 9.1%

Question 13

Colby & Company bonds pay semiannual interest of $50.They mature in 15 years and have a par value of $1,000.The market rate of interest is 8%.The market value of Colby bonds is (round to the nearest dollar):

Accepted Answer

A) $1,173. 
B) $743. 
C) $1,000. 
D) $827.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Common indenture provisions include:

Accepted Answer

A) restrictions on the issuance of common stock dividends. 
B) restrictions on the sale or purchase of fixed assets. 
C) constraints on additional borrowing. 
D) all of the above.

Question 16

A bond's value equals the present value of interest and principal the owner will receive.

Accepted Answer

A) True 
 B)False

Question 17

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?

Accepted Answer

The answer of DAH,Inc.has issued a 12% bond that is...

Question 18

MI has a $1,000 par value,30-year bond outstanding that was issued 20 years ago at an annual coupon rate of 10%,paid semiannually.Market interest rates on similar bonds are 7%.Calculate the bond's price.

Accepted Answer

A) $956.42 
B) $1,000.00 
C) $1,168.31 
D) $1,213.19

Question 19

Given the anticipated rate of inflation (i)of 6.3% and the real rate of interest (R)of 4.7%,find the nominal rate of interest (r).

Accepted Answer

The answer of Given the anticipated rate of inflation (i)of...

Question 20

The yield to maturity on a bond:

Accepted Answer

A) is fixed in the indenture. 
B) is lower for higher-risk bonds. 
C) is the required return on the bond. 
D) is generally equal to the coupon interest rate.

Exam 9: Debt Valuation and Interest Rates