Question 1

Lambda Co.has bonds outstanding that mature in 10 years.The bonds have $1,000 par value,pay interest annually at a rate of 9%,and have a current selling price of $1,125.The yield to maturity on the bonds is less than 9%.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

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 4

On any given day,a bond can be issued at

Accepted Answer

A) a discount. 
B) a premium. 
C) par. 
D) all of the above.

Question 5

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

Accepted Answer

A) It will rise. 
B) It will fall. 
C) It will remain unchanged. 
D) There is no connection between current market interest rates and the value of outstanding bonds.

Question 6

The debenture is the legal agreement between the firm issuing a bond and the bond trustee who represents the bondholders.

Accepted Answer

A) True 
 B)False

Question 7

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? Assume annual coupon payments.

Accepted Answer

A) 21.81% 
B) 6.14% 
C) 12.28% 
D) 11.43%

Question 8

Bonds that sell at a discount have a coupon rate lower than the market interest rate.

Accepted Answer

A) True 
 B)False

Question 9

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.The yield-to-maturity of these bonds is 10%.

Accepted Answer

A) True 
 B)False

Question 10

The detailed legal agreement between a bond's issuer and its trustees is known as the

Accepted Answer

A) collateral agreement. 
B) call provision. 
C) indenture. 
D) covenant.

Question 11

Miller Motorworks has a $1,000 par value,8% annual coupon bond with interest payable semiannually with a remaining term of 15 years.The annual market yield on similar bonds is 6%.This bond will at a discount from par.

Accepted Answer

A) True 
 B)False

Question 12

As market interest rates increase,bond prices decrease.

Accepted Answer

A) True 
 B)False

Question 13

The interest on corporate bonds is typically paid

Accepted Answer

A) semiannually. 
B) annually. 
C) quarterly. 
D) monthly.

Question 14

A $1,000 par value bond is currently listed as selling at 92 1/8.This means

Accepted Answer

A) that you can buy the bond for $92.125. 
B) that you can buy the bond for $921.25. 
C) that if you purchase the bond today,you will receive $921.25 when the bond matures. 
D) none of the above.

Question 15

Given the anticipated rate of inflation (i)of 6.13% and the real rate of interest (R)of 7.56%,what is the true inflation premium?

Accepted Answer

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

Question 16

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 17

Advantages of privately placing debt include all of the following except

Accepted Answer

A) speed. 
B) reduced placement costs. 
C) restrictive covenants. 
D) flexibility.

Question 18

Blue's Chips Inc.has a $1,000 par value bond that is currently selling for $1,300.It has an annual coupon rate of 7%,paid semiannually,and has nine years remaining until maturity.What is the annual yield to maturity on the bond? (Round to the nearest whole percentage. )

Accepted Answer

A) 3.15% 
B) 1.57% 
C) 3.12% 
D) 6.24%

Question 19

The Fisher effect can be expressed mathematically as

Accepted Answer

A) ( nominal rate)= (the real rate of interest)( the inflation rate). 
B) (1+ the nominal rate)= (1+the real rate of interest)(1 + the inflation rate). 
C) the nominal rate)= the real rate of interest + the inflation rate). 
D) the real rate of interest= the nominal rate - the inflation rate).

Question 20

Long-term government bonds are not without maturity risk.

Accepted Answer

A) True 
 B)False

Exam 9: Debt Valuation and Interest Rates

Lambda Co.has bonds outstanding that mature in 10 years.The bonds have $1,000 par value,pay interest annually at a rate of 9%,and have a current selling price of $1,125.The yield to maturity on the bonds is less than 9%.

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

Which of the following statements about bonds is true?

On any given day,a bond can be issued at

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

The debenture is the legal agreement between the firm issuing a bond and the bond trustee who represents the bondholders.

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? Assume annual coupon payments.

Bonds that sell at a discount have a coupon rate lower than the market interest rate.

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.The yield-to-maturity of these bonds is 10%.

The detailed legal agreement between a bond's issuer and its trustees is known as the

Miller Motorworks has a $1,000 par value,8% annual coupon bond with interest payable semiannually with a remaining term of 15 years.The annual market yield on similar bonds is 6%.This bond will at a discount from par.

As market interest rates increase,bond prices decrease.

The interest on corporate bonds is typically paid

A $1,000 par value bond is currently listed as selling at 92 1/8.This means

Given the anticipated rate of inflation (i)of 6.13% and the real rate of interest (R)of 7.56%,what is the true inflation premium?

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?

Advantages of privately placing debt include all of the following except

Blue's Chips Inc.has a $1,000 par value bond that is currently selling for $1,300.It has an annual coupon rate of 7%,paid semiannually,and has nine years remaining until maturity.What is the annual yield to maturity on the bond? (Round to the nearest whole percentage. )

The Fisher effect can be expressed mathematically as

Long-term government bonds are not without maturity risk.