Exam 6: Interest Rates and Bond Valuation

In utilizing a ________ the issuer can annually deduct the current year's interest accrual without having to actually pay the interest until the bond matures.

The theory that explains only the tendency for the yield curve to be upward sloping is

All of the following are examples of restrictive debt covenants EXCEPT

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

The ________ feature allows the bondholder to change each bond into a stated number of shares of stock.

An upward-sloping yield curve that indicates generally cheaper short-term borrowing costs than long-term borrowing costs is called

The real rate of interest is the compensation paid by the borrower of funds to the lender. From the borrower's point of view, the real rate represents the cost of borrowing funds.

An inverted yield curve is upward-sloping and indicates generally cheaper long-term borrowing costs than short-term borrowing costs.

What is the yield to maturity, to the nearest percent, for the following bond: current price is $908, coupon rate is 11 percent, $1,000 par value, interest paid annually, eight years to maturity?

________ became popular vehicle used to finance mergers and takeovers during the 1980s.

Since the issuer of zero (or low) coupon bonds can annually deduct the current year's interest accrual without having to actually pay the interest until the bond matures (or is called), its cash flow each year is increased by the amount of the tax shield provided by the interest deduction.

________ is a paid individual, corporation, or commercial bank trust department that acts as a third party to a bond indenture to ensure that the issuer does not default on its contractual responsibilities to the bondholders.

Bondholders will convert their convertible bonds into shares of stock only when the conversion price is greater than the market price of the stock.

The purpose of the restrictive debt covenant that prohibits the sale of accounts receivable is to

________ is a stipulation in a long-term debt agreement that subsequent or less important creditors agree to wait until all claims of the ________ are satisfied before having their claims satisfied.

Valuation is the process that links risk and return to determine the worth of an asset.

The riskiness of publicly traded bond issues is rated by independent agencies. According to Moody's rating system, an Aaa bond and a Caa bond are ________ and ________, respectively.

Nico bought an investment one year ago and just calculated his return on investment. He found that his purchasing power had increased by 15 percent as a result of his investment. If inflation during the year was 4 percent, then Nico's

Yantai Food, Inc. has issued a bond with par value of $1,000, a coupon rate of 9 percent that is paid semi-annually, and that matures in 10 years. What is the value of the bond if the required rate of return is 12 percent?

The market segmentation theory suggests that the shape of the yield curve is determined by the supply and demand for funds within each maturity segment.