Ch 6

The theory that postulates the shape of the yield curve is determined by the fact that investors are crying investment premium to compensate them for the wrists of holding longer term debt is known as

Liquidity preference theory

The risk-free rate of interest is used in a number of financial models. The best approximation for the risk-free rate is

Short term US treasuries

Which of the following is one of the top to bond rating firms

Standard and Poor's

In the event a firm goes bankrupt and investment grade senior debenture Bond is more likely to receive liquidation proceeds then

Subordinated debenture

subordinate debentures are

Unsecured bond with a junior claim on assets

A long-term debt instrument issued by a business or government to raise capital is known as

bond

The present value of the bonds __________ Determines the value of the bond

coupon payment and maturity value

As market interest rates increase, the value of a bond will __________ all other things equal.

decrease

Interest rate risk _________ As a time to maturity for a bond increases

Increases

It's deeply upward sloping yield curve indicates that

Interest rates are expected to rise in the future

What is the yield to maturity on a zero coupon bond currently selling for $527.32 that has $1000 par value and well mature and eight years

8.33%

Strong corporation has issued $1000 par value, 20 year, 8% bonds paying semi annual interest. It's the market rate of interest for bonds of similar risk is 6% what is the current market price of the bonds

$1231

A zero-coupon bond pays no interest payments to the bondholder. It has $1000 par value and matures in five years. What is the value of this bond if the market rate of interest on similar response is 10%

$620.92

What is the value of $1000 par value 6% coupon bond with seven years remaining to maturity assuming annual coupon payments and a market rate of 9% on similar risk bonds

$849.01

Risky corporations bonds are currently selling for $650 and bear 5% coupon rate and $1000 par value. If the bonds pay annual interest and have 12 years to maturity what is the yield to maturity

10.2%

What is the yield to maturity (YTM) For $1000 par value bond selling for $1100 that matures in five years and paid a 10% coupon one time a year

7.5%

A bond will sell at ___________ Is the required return is greater than the coupon rate

Discount

Default risk is the risk that

Find interest payments or the principal payment will not be made

Investors, analyst, and managers often use the yield curve to:

Forecast interest rates

All other things equal a corporation will pay a _________ coupon rate on ___________ bonds

higher, higher risk

The term structure of interest rates refers to the different

interest rates of securities with the same risk but different maturity dates

The top four categories of bond ratings are collectively known as

investment grade bonds

The theory that postulates the shape of the yield curve is determined by the supply and demand for different maturities of debt is known as

market segmentation theory

A yield curve can be constructed using similar risk corporate bonds. The yield curves constructed with corporate bonds will __________ the U.S. Treasury yield curve.

plot above

The _________ Is a graphical representation of the term structure of interest rates

yield curve