Chp. 7 quiz

A "fallen angel" is a bond that has moved from:

Investment grade to speculative grade

Which one of the following risk premiums compensates for the inability to easily resell a bond prior to maturity?

Liquidity

Dexter Mills issued 20-yr bonds one yr ago at a coupon rate of 10.2%. The bonds make semiannual payments and have a par value of $1,000. If the YTM is 8.2%, what is the current bond price?

$1,190.93

Do-Well bonds have a face value of $1,000 and are currently quoted at 86.725. The bonds have coupon rate of 6.5%. What is the current yield on these bonds?

7.49%

Bare Trees United issued 20-yr bonds 3 yrs ago at a coupons rate of 8.5%. The bonds make semiannual payments. If these bonds currently sell for 91.4% of par value, what is the YTM?

9.53%

All else constant, a bond will sell at _____ when the coupon rate is _____ the yield to maturity.

A discount; less than

A $1,000 face value bond can be redeemed early at the issuer's discretion for $1,030, plus any accrued interest. The additional $30 is called the:

Call premium

A call-protected bond is a bond that:

Cannot be called at this point in time

An example of a negative covenant that might be found in a bond indenture is a statement that the company:

Cannot lease any major assets without bond holder approval

The interest rate risk premium is the:

Compensation investors demand for accepting interest rate risk

Recently, you discovered a convertible, callable with a semiannual coupon of 5%. If you purchase this bond you will have the right to:

Convert the bond into equity shares

Allison just received the semiannual payment of $35 on a bond she owns. Which term refers to this payment?

Coupon

Which one of the following premium is compensation for the possibility that a bond issuer may not pay a bond's interest or principal payments as expected?

Default risk

Bert owns a bond that will pay him $45 each year in interest plus $1,000 as a principal payment at maturity. What is the $1,000 called?

Face Value

DLQ Inc. bonds mature in 12 yrs and have a coupon rate of 6%. If the market rate of interest increases, then the:

Market price of the bond will decrease.

A bond's principal is repaid on the ____ date.

Maturity

Municipal bonds:

Pay interest that is federally tax free

The bond market requires a return of 9.8% on the 5-year bonds issued by JW Industries. The 9.8% is referred to as the:

Yield to maturity

The bond market requires a return of 9.8% on the 5-yr bonds issued by JW Industries. The 9.8% is referred to as the:

Yield to maturity

Which one of these equations applies to a bond that currently has a market price that exceeds par value?

Yield to maturity < Coupon rate