BF Chapter 7

SWH Corporation issued bonds on January 1, 2004. The bonds had a coupon rate of 5.5%, with interest paid semiannually. The face value of the bonds is $1,000 and the bonds mature on January 1, 2019. What is the intrinsic value of an SWH Corporation bond on January 1, 2010 to an investor with a required return of 7%?

$901.08

Podunk Communications bonds mature in 6 1/2 years with a par value of $1,000. They pay a coupon rate of 9% with semi-annual payments. If the required rate of return on these bonds is 11% what is the bond's value?

$908.83

Bartiromo, Inc. bonds have a 4% coupon rate with semi-annual coupon payments and a $1,000 par value. The bonds have 11 years until maturity, and sell for $925. What is the current yield for Bartiromo's bonds?

8.88%

Cabell Corp. bonds pay an annual coupon rate of 10%. If investors' required rate of return is now 12% on these bonds, they will be priced at:

A discount to par value.

Homer's Trucking Company bonds have a 11% coupon rate. Interest is paid semi-annually. The bonds have a par value of $1,000 and will mature 8 years from now. Compute the value of Homer's Trucking Company bonds if investors' required rate of return is 9.5%.

$1,082.75

Swanson, Inc. bonds have a 10% coupon rate with semi-annual coupon payments. They have 12 and 1/2 years to maturity and a par value of $1,000. Compute the value of Swanson's bonds if investors' required rate of return is 8%.

$1,156.22

Assume that Brady Corp. has an issue of 18-year $1,000 par value bonds that pay 7% interest, annually. Further assume that today's required rate of return on these bonds is 5%. How much would these bonds sell for today? Round off to the nearest $1.

$1,233.79

A $1,000 par value 14-year bond with a 10 percent coupon rate recently sold for $965. The yield to maturity is:

10.49%

A corporate bond has a coupon rate of 9%, a face value of $1,000, a market price of $850, and the bond matures in 15 years. Therefore, the bond's yield to maturity is:

11.1%

What is the expected rate of return on a bond that matures in 5 years, has a par value of $1,000, a coupon rate of 11.5%, and is currently selling for $982? Assume annual coupon payments.

12%

Bartiromo, Inc. bonds have a 4% coupon rate with semi-annual coupon payments and a $1,000 par value. The bonds have 11 years until maturity, and sell for $1,025. What is the current yield for Bartiromo's bonds?

3.90%

Bartiromo, Inc. bonds have a 8% coupon rate with semi-annual coupon payments and $1,000 par value. The bonds have 6 years until maturity, and sell for $925. What is the current yield for Bartiromo's bonds?

8.65%

Plasma TV Corporation bonds are currently priced at $1,088. They have a par value of $1,000 and 12 years to maturity. They pay an annual coupon rate of 6%. What is the yield to maturity on this bond?

5.0%

What is the yield to maturity of a corporate bond with 13 years to maturity, a coupon rate of 8% per year, a $1,000 par value, and a current market price of $1,250? Assume semi-annual coupon payments.

5.31%

Peerless Securities has an issue of $1,000 par value bonds with 18 years remaining to maturity. The bonds pay 7.7% interest on a semi-annual basis. The current market price of the bonds is $1,175. What is the yield-to-maturity of the bonds?

6.09%

SWH Corporation issued bonds on January 1, 2004. The bonds had a coupon rate of 5.5%, with interest paid semiannually. The face value of the bonds is $1,000 and the bonds mature on January 1, 2019. What is the yield to maturity for an SWH Corporation bond on January 1, 2010 if the market price of the bond on that date is $950?

6.23%

In 1998 Fischer Corp issued bonds with an 8 percent coupon rate, paid annually, and a $1,000 face value. The bonds mature on March 1, 2023. If an investor purchased one of these bonds on March 1, 2010, determine the yield to maturity if the investor paid $1,100 for the bond.

6.82%

What is the yield to maturity of a bond that pays an 5% coupon rate with annual coupon payments, has a par value of $1,000, matures in 15 years, and is currently selling for $769?

7.6%

A corporate bond has a coupon rate of 9%, a face value of $1,000, and matures in 15 years. Which of the following statements is most correct?

An investor who buys the bond for $900 will have a yield to maturity on the bond greater than 9%.

Zevo Corp. bonds have a coupon rate of 7%, a yield to maturity of 10%, a face value of $1,000, and mature in 10 years. Which of the following statements is most correct?

An investor who purchases the bond today will earn a return of 10% per year if he holds the bond until it matures.

Other things being equal, investors will value which of the following bonds the highest?

Convertible bonds

Which of the following statements is most correct?

If a bond's yield to maturity exceeds its coupon rate, the bond's price must be less than its maturity value.

Shafer Corporation issued callable bonds. The bonds are most likely to be called if:

Interest rates decrease.

Two investors are considering the purchase of Corporation ABC bonds. The bonds are selling at their par value of $1,000 with a coupon rate of 9%. Investor A decides to buy the bonds and Investor B does not buy the bonds.

Investor A must have a required return less than or equal to 9%.

A bond will sell at a discount (below par value) if:

Investor's current required rate of return is above the coupon rate of the bond.

A bond will sell at a premium (above par value) if:

Investor's current required rate of return is below the coupon rate of the bond.

Which of the following statements concerning junk bonds is most correct?

Junk bonds have higher interest rates than AAA-rated bonds because of the higher risk.

If market interest rates decline:

Long-term bonds will rise in value more than short-term bonds.

While checking the Wall Street Journal bond listings you notice that the price of an AT&T bond is the same as the price of a K-Mart bond. Based on this information you know that:

The bond with the lower coupon rate will have the lower current yield.

Which of the following is NOT a definition of yield to maturity:

discount rate that equates present value of future cash flows with a bond's face value.

The yield to maturity on long-term bonds:

is equal to the current yield if the bond is selling for face value.

The yield to maturity on a bond is the rate of return that equates the present value of the bond's future cash flows with the bond's

market value.

A bond's yield to maturity depends upon all of the following except:

the individual investor's required return.

If a corporation were to choose between issuing a debenture, a mortgage bond, or a subordinated debenture, which would have the highest yield to maturity, everything else equal?

the subordinated debenture

If the market price of a bond decreases, then:

the yield to maturity increases.