corp fin chap 7 pt 1
The longer the term, the (smaller/greater) the interest rate sensitivity.
greater
In general, a corporate bond's coupon rate ____,
is fixed until the bond matures
A bond pays annual interest payments of $50, has a par value of $1,000, and a market price of $1,200. How is the coupon rate computed?
$50/$1,000
Which of these are required to calculate the current value of a bond?
Applicable market rate Coupon rate Par value Time remaining to maturity
Which of the following variables are required to calculate the value of a bond?
Coupon rate Market yield Remaining life of bond
As a general rule, which of the following are true of debt and equity?
The maximum reward for owning debt is fixed Equity represents an ownership interest
Which of the following are usually included in a bond's indenture?
The total amount of bonds issued The repayment arrangements
What is a corporate bond's yield to maturity (YTM)?
YTM is the expected return for an investor who buys the bond today and holds it to maturity. YTM is the prevailing market interest rate for bonds with similar features.
When a corporation or government wishes to borrow money from the public on a long-term basis, it usually does so by issuing or selling debt securities that are generically called
bonds or bond
A _________ provision allows the company to repurchase or "__________" part or all of the bond issue at stated prices over a specified period.
call
The amount by which the call price exceeds the par value of the bond is called the _____.
call premium
A corporate bond's yield to maturity ____.
can be greater than, equal to, or less than the bond's coupon rate changes over time
The ________ yield is the bond's annual coupon divided by its price.
current
The written agreement between the corporation and the lender detailing the terms of the debt issue is the
indenture
The federal government can raise money from financial markets to finance its deficits by ___.
issuing bonds
The reason that interest rate risk is greater for Blank______ term bonds than for Blank______ term bonds is that the change in rates has a greater effect on the present value of the Blank______ than on the present value of the Blank______.
long; short; face value; coupon payments
Which of the following are common protective covenants?
the firm must limit dividends to equity holders the firm cannot merge with any other firm the firm must maintain working capital at or above a specified level
The degree of interest rate risk depends on ____.
the sensitivity of the bond's price to interest rate changes
What is the value of a bond if the present value of interest cash flows is $200 and the present value of the par value to be received when the bond matures is $750?
$950
What is the coupon rate on a bond that has a par value of $1,000, a market value of $1,100, and a coupon interest payment of $100 per year?
10%