Exam 6: Interest Rates and Bond Valuation

Table 6.2 -Calculate the current value of Bond M. (See Table 6.2)

The term structure of interest rates is the graphical presentation of the relationship between the annual rate of interest earned on a security purchased on a given day and held to maturity and the remaining time to maturity.

Corporate bonds typically have

The less certain a cash flow, the ________ the risk, and the ________ the present value of the cash flow.

What is the approximate yield to maturity for a $1,000 par value bond selling for $1,120 that matures in 6 years and pays 12 percent interest annually?

The shorter the amount of time until a bond's maturity, the more responsive is its market value to a given change in the required return.

A call feature in a bond allows the issuer the opportunity to repurchase bonds at a stated price prior to maturity. This option has a greater chance of being exercised (to the benefit of the bondholder) if market interest rates have fallen since the bond was issued.

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

The major factors affecting the cost of long-term debt include all of the following EXCEPT

The longer the maturity of a Treasury (or any other) security, the smaller the interest rate risk.

A ________ bond generally has an interest rate that is higher than a similar risk ________ bonds, and a ________ bond generally has an interest rate that is lower than a similar risk ________ bond.

A feature that gives the issuer the opportunity to repurchase bonds at a stated price prior to maturity is called

The legal contract setting forth the terms and provisions of a corporate bond is a(n)

If a bond pays $1,000 plus interest at maturity, $1,000 is called the

A sinking-fund requirement is a restrictive provision often included in a bond indenture providing for periodic payments representing only interest and a large lump-sum payment at the maturity of the loan representing the entire loan principal.

The required return on the bond is likely to differ from the stated interest rate for either of two reasons: 1) economic conditions have changed, causing a shift in the basic cost of long-term funds, or 2) the firm's risk has changed.

A trustee is a paid party representing the bond issuer in the bond indenture.

The ________ is/are a graphic depiction of the term structure of interest rates.

________ allow the holder to purchase a certain number of shares of the firm's common stock at a specified price over a certain period of time and are occasionally part of a debt agreement.

The value of a bond that pays semiannual interest is greater than that on an otherwise equivalent annual coupon interest paying bond.