BA323 Chapter 6 Learnsmart
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
