FINA

1. Blakcburn inc. has issued 30-year $1000 par value, 10% annual coupon bonds, with a yield to maturity of 9%. The Annual coupon payment for the bond is

$100

stocks differ from bonds because

-bond cash flows are known while stock cash flows are uncertain -firms pay bond cash flows prior to paying taxes while stock cash flows are after tax -the ending par value of a bond is known at purchase while the ending value of a share of stock is unknown at purchase

In general, if market interest rates ____, bond prices _______

-increase; decrease -decrease; increase

A bond will sell ____ when the coupon rate is less than the yield to maturity, ____ when the coupon rate is greater than the yield to maturity, and ___ when the coupon rate is equal to the yield to maturity

At a discount; at a premium; equal to the par value

As the rating of a bond increases (for example, from A to AA to AAA) it generally means that

The credit rating increases, the default risk decreases, and the required rate of return decreases

Delagold Corporation has a contractual option to buy back, prior to maturity, bonds the firm issued five years ago. This is an example of what type of bond?

callable bond

_____ means that the percentage increase in the dividend is the same each year

constant growth

True or False: Johnson Products issued $1000 face value 20-year bonds 5 years ag. These bonds are currently selling for $1,218.47. From this information we can conclude that the Johnson Products bonds have a yield to maturity greater than the coupon rate on these bonds

false

The _____ is the written contract between the bond issuer and the bondholder

indenture

The ___ value of a bond is also called its face value. Bonds which sell at less than par value are priced at a ___, while bonds which sell at greater than face value sell at a ___

par; discount; premium

______ have a higher payment priority than do _____

preferred dividends; common dividends

the value of a financial asset is the ____

present value of all if the future cash flows that will be received

according to the efficient market theory,

prices of actively traded stocks do not differ from their true values in an efficient market

the ____ is the market of first sale in which companies first sell their authorized shares to the public

primary market

Which of the following types of bonds may the buyer sell back before maturity?

putable bond

because common stockholders have a right to the cash flows remaining after all claims on the corporation have been satisfied, they are known as

residual claimants

The market price of outstanding issues often varies from par because

the market rate of interest has changed

True or False: Zero-coupon bonds are priced at deep discounts

true

The ___ is the yield an individual would receive if the individual purchased the bond today and held the bond to the end of its life

yield to maturity

The appropriate rate to use to discount the cash flows of a bond in order to determine the current price is the _____

yield to maturity

An individual buying a bond is ____ money

lending

bonds are

long-term debt instruments