FIN 3403 - CHAPTER 7

Prohibition which prevents bond issuers from redeeming callable bonds prior to a specified date.

A deferred call provision is which one of the following?

Zero Coupon

A bond that has only one payment, which occurs at maturity, defines which of these types of bonds?

Face value

A bond's coupon rate is equal to the annual interest divided by which one of the following?

Call premium

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:

Two month's interest.

A six-year, $1,000 face value bond issued by Taylor Tools pays interest semiannually on February 1 and August 1. Assume today is October 1. What will be the difference, if any, between this bond's clean and dirty prices today?

Has more interest rate risk than a comparable coupon bond.

A zero coupon bond:

Are considered to be free of default risk.

Bonds issued by the U.S. government:

Have a sinking fund provision.

Callable bonds generally:

$967.24

Roadside Markets has a 6.75 percent coupon bond outstanding that matures in 10.5 years. The bond pays interest semiannually. What is the market price per bond if the face value is $1,000 and the yield to maturity is 7.2 percent?

The bond price will decrease by 8.02 percent.

The Corner Grocer has a 7-year, 6.5 percent semiannual coupon bond outstanding with a $1,000 par value. The bond has yield to maturity of 5.5. percent. Which one of the following statements is correct if the market yield suddenly increases to 7 percent?

$807.86

Today, you want to sell a $1,000 face value zero coupon bond you currently own. The bond matures in 3.5 years. How much will you receive for your bond if the market yield to maturity is currently 6.19 percent? Ignore any accrued interest?

Note

Last year, Lexington Homes issued $1 million in unsecured, noncallable debt. This debt pays an annual interest payments for $55 and matures six years from now. The face value is $1,000 and the market price is $1,020. Which one of these terms correctly describes a feature of this debt?

Yield to Maturity

The bond market requires a return of 9.8 percent on the five-year bonds issued by JW Industries. The 9.8 percent is referred to as which of the following?

Taxes and default risk

The yields on a corporate bond differ from those on a comparable Treasury security primarily because of:

The company cannot lease any major assets without bondholder approval.

Which one of the following is a negative covenant that might be found in a bond indenture?

12.53

World travel has 7 percent, semiannual, coupon bonds outstanding with a current market price of $1,023.46, a par value of $1,000, and a yield to maturity of 6.72 percent. How many years is it until these bonds mature?

5.62

You own a bond that pays $64 in interest annually. The face value is $1,000 and the current market price is $1,062.50. The bond matures in 11 years. What is the yield to maturity?