Question 1

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 2

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 3

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

Accepted Answer

A) The call provision 
B) Convertibility 
C) Floating rate 
D) The priority of claims

Question 4

When inflation rates go up,bond prices go up as well.

Accepted Answer

A) True 
 B)False

Question 5

Sterling Corp.bonds pay 10% annual interest and are selling at 97.The market rate of interest

Accepted Answer

A) is less than 10%. 
B) is greater than 10%. 
C) equals 10%. 
D) cannot be determined.

Question 6

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%.

Accepted Answer

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

Question 7

Mango Company bonds pay a semiannual coupon rate of 6.4%.They have eight years to maturity and face value,or par,of $1,000.Compute the value of Mango bonds if investors' required rate of return is 5%.

Accepted Answer

A) $1,090.48 
B) $883.66 
C) $1,006.83 
D) $950.00

Question 8

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 9

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

Accepted Answer

A) True 
 B)False

Question 10

Junk bonds

Accepted Answer

A) pay little or no interest. 
B) are commonly used to finance municipal waste disposal facilities. 
C) are issued by the U.S.Treasury Department. 
D) have yields that are considerably higher than those of the highest rated bonds.

Question 11

The holder of a non-amortizing bonds

Accepted Answer

A) receives no periodic interest payments. 
B) receives the full par value of the bond when it matures. 
C) receives shares of common stock rather than cash interest payments. 
D) receives periodic payments that consist of both interest and principal.

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.

Question 13

Calculate the value of a bond that is expected to mature in 13 years with a $1,000 face value.The interest coupon rate is 8%,and the required rate of return is 10%.Interest is paid annually.

Accepted Answer

The answer of Calculate the value of a bond that...

Question 14

A basis point is equal to one hundredth of a percentage point.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

You purchased Photon,Inc.bonds exactly one year ago today for $875.During the latest year,you received $65 in interest on the bonds.The current yield on these bonds is 6.5%.

Accepted Answer

A) True 
 B)False

Question 17

Applebee sold an issue of 30-year,$1,000 par value bonds to the public.The coupon rate of 8.75% is payable annually.It is now five years later,and the current market rate of interest is 7.25%.What is the current market price (intrinsic value)of the bonds? Round off to the nearest $1.

Accepted Answer

A) $715 
B) $1,171 
C) $1,225 
D) $697

Question 18

Six years ago,Colt,Inc.sold an issue of 30-year,$1,000 par value bonds.The coupon rate of 5.25% is payable annually.Investors presently require a rate of return of 8.375%.What is the current market price (intrinsic value)of the bonds? Round off to the nearest $1.

Accepted Answer

A) $1,050 
B) $932 
C) $681 
D) $1,111

Question 19

A bond issued by Pomme Computers has a coupon rate of #5 paid semi-annually.If the market's required rate of return on this bond is also 3%,the bond will sell at par value.

Accepted Answer

A) True 
 B)False

Question 20

A conversion feature confers the option of redeeming a bond for the company's stock rather than cash.

Accepted Answer

A) True 
 B)False

Exam 9: Debt Valuation and Interest Rates

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.

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?

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

When inflation rates go up,bond prices go up as well.

Sterling Corp.bonds pay 10% annual interest and are selling at 97.The market rate of interest

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%.

Mango Company bonds pay a semiannual coupon rate of 6.4%.They have eight years to maturity and face value,or par,of $1,000.Compute the value of Mango bonds if investors' required rate of return is 5%.

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

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

Junk bonds

The holder of a non-amortizing bonds

Calculate the value of a bond that is expected to mature in 13 years with a $1,000 face value.The interest coupon rate is 8%,and the required rate of return is 10%.Interest is paid annually.

A basis point is equal to one hundredth of a percentage point.

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

You purchased Photon,Inc.bonds exactly one year ago today for $875.During the latest year,you received $65 in interest on the bonds.The current yield on these bonds is 6.5%.

Applebee sold an issue of 30-year,$1,000 par value bonds to the public.The coupon rate of 8.75% is payable annually.It is now five years later,and the current market rate of interest is 7.25%.What is the current market price (intrinsic value) of the bonds? Round off to the nearest $1.

Six years ago,Colt,Inc.sold an issue of 30-year,$1,000 par value bonds.The coupon rate of 5.25% is payable annually.Investors presently require a rate of return of 8.375%.What is the current market price (intrinsic value) of the bonds? Round off to the nearest $1.

A bond issued by Pomme Computers has a coupon rate of #5 paid semi-annually.If the market's required rate of return on this bond is also 3%,the bond will sell at par value.

A conversion feature confers the option of redeeming a bond for the company's stock rather than cash.