Exam 6: Interest Rates and Bond Valuation

Interest rate risk and the time to maturity have a relationship that is best characterized as

Standard debt provisions specify certain criteria of satisfactory record keeping and reporting, tax payment, and general business maintenance on the part of the lending firm.

Restrictive covenants are contractual clauses in long-term debt agreements that place certain operating and financial constraints on the borrower.

A downward-sloping yield curve indicates generally cheaper short-term borrowing costs than long-term borrowing costs.

The three theories cited to explain the general shape of the yield curve are all of the following EXCEPT

The purpose of the restrictive debt covenant that imposes fixed assets restrictions is to

________ is secured by real estate.

What is the current price of a $1,000 par value bond maturing in 12 years with a coupon rate of 14 percent, paid semiannually, that has a YTM of 13 percent?

Since a putable bond gives its holder the right to "put the bond" at specified times or because of specified actions by the issuing firm, the bond's yield would be lower than that of an otherwise equivalent non-putable bond.

Gong Li has recently inherited $10,000 and is considering purchasing 10 bonds of the Lucky Corporation. The bond has a par value of $1,000 with 10 percent coupon rate and will mature in 10 years. Does Gong Li have enough money to buy 10 bonds if the required rate of return is 9 percent?

The nominal rate of interest is the rate that creates equilibrium between the supply of savings and the demand for investment funds in a perfect world, without inflation, where funds suppliers and demanders have no liquidity preference and all outcomes are certain.

Tangshan Coal, Inc. just issued a 10 percent, 25-year bond with a $1,000 par value that pays interest semiannually. (a) How much can the investor expect in annual interest (in dollars)? (b) How much can the investor expect in interest every six months (in dollars)? (c) How much can the investor expect in par value at the end of the 25th year?

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

High-risk, high-yield junk bonds have declined in popularity over time due to

Generally, long-term loans have higher interest rates than short-term loans because of

The ________ rate of interest is typically the required rate of return on a three-month U.S. Treasury bill.

A bond will sell ________ when the stated rate of interest exceeds the required rate of return, ________ when the stated rate of interest is less than the required return, and ________ when the stated rate of interest is equal to the required return.

________ of all future cash flows an asset is expected to provide over a relevant time period is the market value of the asset.

At any time, the slope of the yield curve is affected by

Generally, an increase in risk will result in ________ required return or interest rate.