Quiz 5

Ten years ago Salmon Acqua Farming Inc. issued twenty-five-year 8% annual coupon bonds with a $1,000 face value each. Since then, interest rates in general have fallen and the yield to maturity on the Bacon bonds is now 7%. Given this information, what is the price today for such a bond?

$1,091.08

Portland Brewery Inc. recently issued 30-year $1,000 face value, 12% annual coupon bonds. The market discount rate for this bond is only 7%. What is the current price of this bond?

$1,620.45

Creative Solutions Inc. has issued 10-year $1,000 face value, 8% annual coupon bonds, with a yield to maturity of 9.0%. The annual interest payment for the bond is ________.

$80.00

The ExecUfind Corporation has issued 20-year semiannual coupon bonds with a face value of $1,000. If the annual coupon rate is 10% and the current yield to maturity is 12%, what is the firm's current price per bond?

$849.54

The ________ is the regular interest payment of the bond.

Coupon

The ________ is the interest rate printed on the bond.

Coupon rate

The ________ is the annual coupon payment divided by the current price of the bond, and is not always an accurate indicator.

Current yield

The four steps to determining the price of a bond are ________.

Determine the amount and timing of the future cash flows, determine the appropriate discount rate, find the present value of the lump-sum principal and the annuity stream of coupons, and add the PVs of the principal and coupons

A bond is a ________ instrument by which a borrower of funds agrees to pay back the funds with interest on specific dates in the future.

Long-term debt

The ________ is the face value of the bond.

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

The ________ is a market derived interest rate used to discount the future cash flows of the bond.

Yield to maturity

The ________ is the return the bondholder receives on the bond if held to maturity.

Yield to maturity

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

Rogue Recovery Inc. wishes to issue new bonds but is uncertain how the market would set the yield to maturity. The bonds would be 20-year, 7% annual coupon bonds with a $1,000 par value. The firm has determined that these bonds would sell for $1,050 each. What is the yield to maturity for these bonds?

6.54%

Flashstream Productions Inc. is issuing a zero-coupon bond that will have a maturity of fifty years. The bond's par value is $1,000, and the current yield on similar bonds is 7.5%. What is the expected price of this bond, using the semiannual convention?

$25.19

A bond may be issued by ________.

- Companies - State governments - The federal government All of these