Finance q#3

Ross purchased a new commercial vehicle today for $25,000. The entire amount was financed using a five-year loan with a 4 percent interest rate (compounded monthly). How much will Ross owe on his vehicle loan after making payments for three years (i.e., when two years of payments remain)?

$10,602.44

Ohio Hospitals

$362.44

Shaun is planning to invest $570 in a mutual fund at the end of each of the next eight years. If his opportunity cost rate is 6 percent compounded annually, how much will his investment be worth after the last annuity payment is made?

$5,642

Synergy Inc.

15.76%

Bond def

A bond is a long-term contract under which a borrower (issuer) agrees to make payments of interest and principal on specific dates to the bondholder (investor). The interest payments are determined by the coupon rate, which represents the total interest paid each year, stated as a percentage of the bond's face value.

Call provision def

A call provision gives the issuing firm the right to "call in" the bonds for redemption prior to maturity. When interest rates decline, firms can recall (refund) high-cost debt that is outstanding and replace it with new, lower-cost debt.

Are Euro bonds bearer or registered bonds?

Bearer bonds

Floating-rate bonds pay interest based on an inflation index, such as the consumer price index (CPI).

False The coupon rates on floating-rate bonds float with market interest rates rather than with the inflation rate. Thus, when interest rates rise, the coupon rates increase, and vice versa.

If a bond's yield to maturity is less than its coupon rate, the bond should be selling at a discount; i.e., the bond's market price should be less than its face (maturity) value.

False When the market yield is less than the coupon rate of interest, the bond sells for greater than its par value, or at a premium.

The interest rate on a 10 percent, 10-year zero-coupon bond with a $1,000 face value falls from 8 percent to 7 percent. Which of the following is true of the value of the bond?

The value of the bond at 7 percent is $508.34.

Regardless of the size of the coupon payment, the price of a bond moves in the opposite direction to interest rate movements. For example, if interest rates rise, bond prices fall.

True

Zero coupon bonds are offered at substantial discounts below their par values.

True Zero coupon bonds are offered at substantial discounts below their par values because they or no coupon interest.

When to sell at a discount?

When the market yield is greater than the coupon rate of interest, a bond sells for less than its par value, or at a discount. When the market yield is less than the coupon rate of interest, the bond sells for greater than its par value, or at a premium.

If a firm's bond rating is below BBB?

Will find it difficult to find potential investors.

The effective annual rate of an investment is equal to its quoted interest rate when the investment is compounded _____.

annually

Pelican Corporation

annuity due

Because a bond's rating serves as an indicator of its default risk, the rating has a direct, measurable influence on the firm's:

cost of using such debt and thus the bond's interest rate.

If a bond's yield to maturity exceeds its coupon rate, the bond's:

price must be less than its par value.

If the yield to maturity (the market rate of return) of a bond is less than its coupon rate, the bond should be:

selling at a premium; i.e., the bond's market price should be greater than its face value.