Finance Module 7
Three $1,000 face value bonds mature in 10 years have the same level of risk, hence their YTM's are equal. Bond A has an 8% annual coupon. Bond B has a 10% annual coupon and Bond C has a 12% annual coupon. Bond B sells at par. Assuming interest rates remain constant for the next 10 years, which of the following statements is CORRECT?
Bond A sells at a discount (its price is less than par), and its price is expected to increase as the bond approaches maturity
Which of the following statements is FALSE?
By including more covenants, issuers always increase their costs of borrowing
Prior to its maturity date, the price of a zero-coupon bond is its face value
False
Which of the following statements is CORRECT?
If a coupon bond is selling at par, its current yield equals its yield to maturity
A 12 year bond has an annual coupon rate of 9%. The bond has a yield to maturity of 7%. Which of the following statements is CORRECT?
If market interest rates remain unchanged, the bond's price exactly one year from now will be lower than it is today
A 10 year bond pays an annual coupon, its YTM is 8% and it currently trades at a premium. Which of the following statements is CORRECT?
If the yield to maturity remains at 8%, then the bond's price will decline over the next year
Which of the following statements is CORRECT?
None of the above is correct
Which of the following statements is FALSE?
Prior to its maturity date, the price of a zero-coupon bond is always greater than its face value
How are investors in zero- coupon bonds compensated for making such an investment?
Such bonds are purchased at a discount to their face value
A 10 year corporate bond has an actual coupon of 9%. the bond is currently selling at par ($1000) Which of the following statements is NOT CORRECT?
The bond's expected capital gains yield is positive.
A 15 year bond with a face value of $1,000 currently currently sells for $850. Which of the following statements is CORRECT?
The bond's yield to maturity is greater than its coupon rate
12) Which of the following is statements is FALSE?
When prices are quoted in the bond market, they are conventionally quoted assuming the ace value $1000
A corporation issues a bond that generates the cash flows below. If the periods shown are 3 months, which of the following best describes that bond?
a 15-year bond with a notional value of $5000and a coupon rate of 5% paid quarterly
Which of the following bonds is trading at a premium?
a 5 year bond w/ a $200 face value whose yield to maturity is 7.0% APR and coupon rate is 7.2% APR paid semiannually
Which of the following is usually a form of public debt?
a bond issue
Athlestone Realty issues debt with a maturity of 20 years. In this case of bankruptcy, holders of this debt may claim the property held by Athlestone Realty. Which of the following best describes this type of corporate debt?
a mortgage bond
Which of the following bonds will have the least percentage change in value if interest rates (YTM not coupon rates since coupon rates are fixed) on all bonds increased by 1%?
a ten-year bond with a $2000 face value whose coupon rate is 6.8%
A corporate bond which receives a BBB rating from the Standard and Poor's is considered
an investment grade bond
The credit spread of a bond shrinks if the probability of the issuer defaulting increases
false
A university issues a bond with a face value of $10,000 and a a coupon rate of 5.65% that matures on 07/15/2015. the holder of such a bond receives coupon payments of $282.50. How frequently are coupon payments made in this case?
semiannually
What is the bond's seniority?
the bondholders priority in claiming assets in the event of default?
You are considering two bonds. Bond A has 9% annual coupon while Bond B has a 6% annual coupon. Both bonds have a 7% yield to maturity, and the YTM is expected t remain constant. Which of the following statements is CORRECT?
the price of Bond A will decrease over time, but the price of Bond B will increase over time
Bonds w/ a high risk of default generally offer high yields
true
How much would the holder of such a bond earn each coupon payment for each $100 in face value if coupons are paid semiannually?
$2.15
How much would the holder of such a bond earn each coupon payment for each $100 in face value if coupons are paid annually?
$4.00
An investor holds a ford bond with a face value of $5000, a coupon rate of 4% and semiannual payments that matures on 01/15/2009. How much will the investor receive on 01/15/2009 (interest and principle combined?)
$5100
Which of the following bonds would have the greatest percentage increase in value if all interest rates (YTM not coupon rates since coupon rates are fixed) fall by 1%?
20-year, zero coupon bond
A company releases a 5 year bond w/ a face value of $1000 and coupons paid semiannually. If market interests rates imply a YTM of 6%, which of the following coupon rates will cause the bond to be issued at a premium?
8%
Which of the following statements is CORRECT?
All else equal, if a bond's yield to maturity increases, its price will fall
Which of the following is true about the face value of a bond?
All of the above are true
