Chapter 15 FIN2100

$70.00

A $1,000 bond carries a 7.0% coupon. The bond currently trades at $1,100. What would the annual interest payment be on this bond? -$35.00 -$70.00 -$77.00 -$75.50

10.34% yield with a 11.23% yield to maturity

A $1,000 bond has an annual 9.0% coupon and trades for $870. It has 10 years to maturity. What is the current yield and yield to maturity? -10.34% yield with a 11.19% yield to maturity. -10.34% yield with a 11.23% yield to maturity. -5.6% yield with a 11.19% yield to maturity. -11.05% yield with an 11.98% yield to maturity.

42.50

A UCF student owns one $1,000 corporate bond issued by Chevron. The bond pays 8.5 percent. If interest is paid semiannually, what is the amount of the check that he/she will receive at the end of each six-month period? A. $4.25 B. $42.50 C. $85 D. $850 E. $1,000

General obligation bond

A bond backed by the full faith, credit, and unlimited taxing power of the government that issued it.

true

A bond is generally sold in increments of $1,000 (including $10,000 and $100,000). true or false

Registered coupon bond

A bond registered fo rprincipal only and not for interest.

Convertible bond

A bond that can be exchanged at the owners option, for a specified number of shares of the corporation's common stock.

Debenture

A bond that is backed only by the reputation of the issuing corporation.

Bearer bond

A bond that is not registered in the investor's name.

Registered bond

A bond that is registered in the owner's name by the issuing company.

Revenue bond

A bond that is repaid from the income generated by the project it is designed to finance.

Municipal bond

A bond that provides federally tax-free interest income is called a d) A and C above both provide tax free income. c) Municipal bond. b) Corporate debenture bond. a) U. S. savings bond.

allows the corporation to buy outstanding bonds from current bondholders before the maturity date

A call feature: A. allows bondholders to convert their bond to a specified number of shares of common stock. B. is not available on corporate bonds. C. allows the corporation to buy outstanding bonds from current bondholders before the maturity date. D. is only available with government securities. E. is guaranteed by the corporation.

true

A convertible bond is a bond that can be exchanged, at the owner's option, for a specified number of shares of the corporation's common stock. true or false

Mortgage bond

A corporate bond secured by various assets of the issuing firm.

Corporate bond

A corporation's written pledge to repay a specified amount of money, along with interest.

Municipal bond

A debt security issued by a state or local government.

Call feature

A feature that allows the corpoation to call in or buy outstanding bonds from current bondholders before the maturity date.

Sinking fund

A fund to which annual or semi-annual deposits are made for the purpose of redeeming a bond issue.

Treasury bill

A government security issued in minimum units of $100 with maturities that are 4-week, 13-week, 26-week, and 52-week is called a -Treasury bond. -Treasury bill. -Treasury inflation protected security (TIPS). -Treasury note.

Bond indenture

A legal document that details all of the conditions relating to a bond issue.

Bond ladder

A strategy where investors divide their investment dollars among bonds that mature at regular intervals in order to balance risk and return.

Government bond

A written pledge of a government or a municipality to repay a specified sum of money, along with interest.

8.54 percent

An investor has just purchased a bond with a face value of $1,000 that pays 6 percent annually. The purchase price of the bond was 900, and the bond will mature in 5 years. What is the yield to maturity for this bond? A. 5 percent B. 6 percent C. 8.54 percent D. 9 percent E. It is impossible to calculate yield to maturity with the above information.

Subordinated debenture

An unsecured bond that gives bondholders a claim secondary to that of other designated bondholders with respect to interest payments, repayment, and assets.

6.94 percent

Assume that you are a taxpayer in the 28 percent tax bracket. Also, assume that you purchase a tax-exempt bond that pays 5 percent. What is your pretax equivalent yield? A. 5 percent B. 6.0 percent C. 6.94 percent D. 7.2 percent E. 14.4 percent

Serial bonds

Bonds of a single issue that mature on different dates.

High-yield bonds

Corporate bonds that pay higher interest, but also have a higher risk of default.

Current yield

Determined by dividing the annual dollar amount of income generated by an investment by the investment's current market value.

Maturity date

For a corporate bond, the date on which the corporation is to repay the borrowed money.

false

If overall interest rates in the economy fall, then a corporate bond with a fixed interest rate will decrease in value. true or false

Convertible corporate note

Legal debt that is convertible to shares of common stock at the investor's option.

Face value

The dollar amount the bondholder will receive at the bond's maturity

D

The lowest bond rating issued by Standard & Poor's is: A. A. B. B. C. C. D. D. E. Default.

Yield

The rate of return earned by an investor who holds a bond for a stated period of time - usually a 12-month period.

6.12%

What is the comparable pre-tax yield on a municipal bond yielding 5.2% assuming a marginal tax bracket of 15%? -1.35% -3.65% -6.93% -6.12%

8.75 percent

What is the current yield for a $1,000 corporate bond that pays 7 percent and has a current market value of $800? A. 7 percent B. 8 percent C. 8.75 percent D. 10 percent E. 11.4 percent

Bonds are a form of debt capital

Which of the following statements is correct? A. Stock is a form of debt capital. B. Stock must be repaid at maturity. C. Bonds are a form of debt capital. D. Bonds do not have to be repaid at maturity. E. Interest payments to bondholders are at the discretion of the corporation.

Bonds may be purchased in either the primary or secondary market

Which of the following statements is true? -All bonds must be resold in the primary market. -A change in a bond's rating does not effect its market value if the company continues to pay interest to its bondholders in a timely manner. -Bonds may be purchased in either the primary or secondary market. -Bonds cannot be resold, and must be held to maturity.

A 35 year old woman with a high risk tolerance and no need for current income

Zero coupon bonds would be best suited for -A 65 year old couple living on a pension. -A 20 year old man saving for graduate school. -A single parent with little savings. -A 35 year old woman with a high risk tolerance and no need for current income.