BA323 Chapter 6 Learnsmart

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what is a real rate of return

- rate of return that has been adjusted for inflation -percentage change in buying power

the term structure of interest rates describes

-the pure value of money - the relationship between nominal rates and time to maturity

what is a bond's accrued interst

interest that has been earned by not yet received by the current bondholder

when interest rates in the market rise, we can expect the price of bonds to

decrease

which of the following is not a difference between debt and equity

equity is publicly traded while debt is not

what is a corporate bonds yield to maturity

expected return for an investor who buys the bond today and holds it to maturity - prevailing market interest rate for bonds with similar features

a debenture is a bond secured with collateral

false

limitation of bond ratings is that they

focus exclusively on default risk

key difference between interest payments and dividend payments is

interest is tax deductible -dividends are not tax deductible

a zero coupon bond is a bond that

makes no interest payments

which of the following variables is not required to calculate the value of a bond

original issue price of bond

what does a bond rating reflect

the ability of the firm to repay its debt and interest on time

what does the AAA rating assigned by S&P mean

the firm is in a strong position to meet its debt obligaitons

what does the clean price for a bond represent

the quoted price excluding accrued interest

what does a treasury yield curve show

it shoes the yield for different maturities of treasury notes and bonds

Which of these correctly identify differences between US Treasury bonds and corporate bonds?

- treasury bonds offer certain tax benefits to investors that corporate bonds cannot offer -treasury bonds are issued by the US government while corporate bonds are issued by corporations -treasury bonds are considered free of default risk while corporate bonds are exposed to default risk

the sensitivity of a bonds price to interest rate changes is dependent on which of the following variables

-coupon rate -time to maturity

which of the following may increase the yield on corporate bonds as compensation to investors but will not impact treasury bond liquidity

-default risk premium -liquidity premium

municipal bonds

bonds issued by state and local governments

bonds current yield

annual coupon payment/ current price

what are crossover bonds

bonds that have both an investment grade and a junk bond rating

a provision in the bond indenture giving the issuing company the option to repurchase the bonds before maturity is termed

call provision

as an investor in the bond market, why should you be concerned about changes in interest rate

changes in interest rates cause changes in bond prices

a corporate bonds yield to maturity

changes over time - is usually not the same as a bonds coupon rate


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