Chp. 7 quiz
A "fallen angel" is a bond that has moved from:
Investment grade to speculative grade
Which one of the following risk premiums compensates for the inability to easily resell a bond prior to maturity?
Liquidity
Dexter Mills issued 20-yr bonds one yr ago at a coupon rate of 10.2%. The bonds make semiannual payments and have a par value of $1,000. If the YTM is 8.2%, what is the current bond price?
$1,190.93
Do-Well bonds have a face value of $1,000 and are currently quoted at 86.725. The bonds have coupon rate of 6.5%. What is the current yield on these bonds?
7.49%
Bare Trees United issued 20-yr bonds 3 yrs ago at a coupons rate of 8.5%. The bonds make semiannual payments. If these bonds currently sell for 91.4% of par value, what is the YTM?
9.53%
All else constant, a bond will sell at _____ when the coupon rate is _____ the yield to maturity.
A discount; less than
A $1,000 face value bond can be redeemed early at the issuer's discretion for $1,030, plus any accrued interest. The additional $30 is called the:
Call premium
A call-protected bond is a bond that:
Cannot be called at this point in time
An example of a negative covenant that might be found in a bond indenture is a statement that the company:
Cannot lease any major assets without bond holder approval
The interest rate risk premium is the:
Compensation investors demand for accepting interest rate risk
Recently, you discovered a convertible, callable with a semiannual coupon of 5%. If you purchase this bond you will have the right to:
Convert the bond into equity shares
Allison just received the semiannual payment of $35 on a bond she owns. Which term refers to this payment?
Coupon
Which one of the following premium is compensation for the possibility that a bond issuer may not pay a bond's interest or principal payments as expected?
Default risk
Bert owns a bond that will pay him $45 each year in interest plus $1,000 as a principal payment at maturity. What is the $1,000 called?
Face Value
DLQ Inc. bonds mature in 12 yrs and have a coupon rate of 6%. If the market rate of interest increases, then the:
Market price of the bond will decrease.
A bond's principal is repaid on the ____ date.
Maturity
Municipal bonds:
Pay interest that is federally tax free
The bond market requires a return of 9.8% on the 5-year bonds issued by JW Industries. The 9.8% is referred to as the:
Yield to maturity
The bond market requires a return of 9.8% on the 5-yr bonds issued by JW Industries. The 9.8% is referred to as the:
Yield to maturity
Which one of these equations applies to a bond that currently has a market price that exceeds par value?
Yield to maturity < Coupon rate