Exam 6: Interest Rates and Bond Valuation

When the required return is different from the coupon interest rate and is assumed to be constant until maturity, the value of the bond will approach its par value as the passage of time moves the bond's value closer to maturity.

The yield curve in an economic period where higher future inflation is expected would most likely be

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 detriment of the bondholder) if market interest rates have fallen since the bond was issued.

The major factor(s) affecting the cost, or interest rate, on a bond is (are) its

In a bond indenture, subordination is the stipulation that subsequent creditors agree to wait until all claims of the senior debt are satisfied.

A corporate financial analyst must calculate the value of an asset which produces year-end annual cash flows of $0 the first year, $2,000 the second year, $3,000 the third year, and $2,500 the fourth year. Assuming a discount rate of 15 percent, what is the value of this asset?

The size of the loan and its issuance costs (as a percentage of the amount borrowed) are

When the required return is constant and equal to the coupon rate, the price of a bond as it approaches its maturity date will

The ________ rate of interest creates equilibrium between the supply of savings and the demand for investment funds.

Interest rate risk is the risk that results from the impact that changes in interest rates have on asset values.

The yield to maturity on a bond with a current price equal to its par, or face, value will always be equal to the coupon interest rate.

The nominal rate of interest is composed of

What is the current price of a $1,000 par value bond maturing in 9 years with a coupon rate of 8 percent, paid annually, that has a YTM of 9 percent?

With subordinated debentures, payment of interest by the firm is required only when earnings are available.

In the present value model, risk is generally incorporated into the

The size of the bond offering and the cost of issuing the bond (as a percentage of the amount raised) are inversely related.

If a bond's required return always equals its coupon interest rate, its bond's value will remain at par until it matures.

Payment of interest required only when earnings are made available from which to make a payment is characteristic of a(n)

A bond with short maturity has less "interest rate risk" than a bond with long maturity when all other features coupon interest rate, par value, and interest payment frequency are the same.

The real rate of interest is the actual rate of interest charged by the suppliers of funds and paid by the demanders.