Valuation - More

Terminator Bug Company bonds have a​ 14% coupon rate. Interest is paid semiannually. The bonds have a par value of​ $1,000 and will mature 10 years from now. Compute the value of Terminator bonds if​ investors' required rate of return is​ 12%. A. ​$894.06 B. ​$1,000.00 C. ​$1,149.39 D. ​$1,114.70

D. ​$1,114.70 N = (10*2) 20 I/Y = (12/2) 6% PV = ? PMT = (1000*14%)/2 FV = 1000

Aurand, Inc. has outstanding bonds with an​ 8% annual coupon rate paid semiannually. The bonds have a par value of​ $1,000, a current price of​ $904, and will mature in 14 years. What is the annual yield to maturity on the​ bond? A. ​4.62% B. ​10.47% C. ​15.80% D. ​9.24% E. ​7.90%

D. ​9.24%

Miller Motorworks has a​ $1,000 par​ value, 8% annual coupon bond with interest payable semiannually with a remaining term of 15 years. The annual market yield on similar bonds is​ 6%. This bond will at a discount from par. (True/False)

False

The par value of a bond A. is never returned to the bondholder. B. never equals its market value. C. generally is​ $1,000. D. is determined by the investor.

C. generally is​ $1,000.

As market interest rates​ increase, bond prices decrease. True False

True

As the maturity date of a bond​ approaches, the​ bond's market value approaches its par value. True False

True

Convertible bonds can be exchanged for the issuing​ firm's common stock at a price specified at the time of issue. True False

True

A bond's value equals the present value of interest and principal the owner will receive.

d. A bond's value equals the present value of interest and principal the owner will receive. True: A bonds PV is the PV of interest & principal

A​ $1,000 par value 10 − year bond with a​ 10% coupon rate recently sold for​ $900. The yield to maturity A. is​ 10%. B. is greater than​ 10%. C. is less than​ 10%. D. cannot be determined.

B. is greater than​ 10%. its 11.75% (use calculator) n = 10 FV = 1000 PMT = (1000* 10%) 100 PV = -900 (always negative) I/Y=???

The Blackburn Group has recently issued 20−​year, unsecured bonds rated BB by​ Moody's. These bonds yield 443 basis points above the U.S. Treasury yield of​ 2.76%. The yield to maturity on these bonds is

(.0276) + (443*.01) = 7.19%

What is the yield to maturity of a nineminus−year bond that pays a coupon rate of​ 20% per​ year, has a​ $1,000 par​ value, and is currently priced at​ $1,407? Assume annual coupon payments.

12.28% n = 9 PMT = (1000*20%) FV = 1000 PV = -1407 I/Y = ?

Junk bonds A. have yields that are considerably higher than those of the highest rated bonds. B. are commonly used to finance municipal waste disposal facilities. C. pay little or no interest. D. are issued by the U. S. Treasury Department.

A. have yields that are considerably higher than those of the highest rated bonds. high interest rates

Six years​ ago, Colt, Inc. sold an issue of 30 −​year, ​$1,000 par value bonds. The coupon rate of​ 5.25% is payable annually. Investors presently require a rate of return of​ 8.375%. What is the current market price​ (intrinsic value) of the​ bonds? Round off to the nearest​ $1. A. ​$681 B. ​$1,111 C. ​$1,050 D. ​$932

A. $681 N = 24 I/Y = 8.375% PV = ? PMT = (1000*5.25%) FV = 1000

Which of the following statements about bonds is​ true? A. As the maturity date of a bond​ approaches, the market value of a bond will become more volatile. B. The market value of a bond moves in the opposite direction of market interest rates. C. If market interest rates are higher than a​ bond's coupon interest​ rate, then the bond will sell above its par value. D. Longminus−term bonds are less risky than shortminus−term bonds. E. None of the above.

B. The market value of a bond moves in the opposite direction of market interest rates.

All of the following affect the value of a bond EXCEPT A. ​investors' required rate of return. B. the recorded value of the​ firm's assets. C. the coupon rate of interest. D. the maturity date of the bond.

B. the recorded value of the​ firm's assets.

If the market price of a bond​ increases, then A. the coupon rate increases. B. the yield to maturity decreases. C. the yield to maturity increases. D. none of the above.

B. the yield to maturity decreases.

The yield to maturity on a bond A. is fixed in the indenture. B. is lower for higherminus−risk bonds. C. is the required return on the bond. D. is generally equal to the coupon interest rate.

C. is the required return on the bond

As interest​ rates, and consequently​ investors' required rates of​ return, change over​ time, the​ ________ of outstanding bonds will also change. a. par value B. coupon interest payment C. price D. maturity date

C. price