Exam 6: Interest Rates and Bond Valuation

What is the value of an asset which pays $200 a year for the next 5 years and can be sold for $1,500 at the end of five years from now? Assume that the opportunity cost is 10 percent.

The decision to refund a callable bond

A firm has an issue of $1,000 par value bonds with a 9 percent stated interest rate outstanding. The issue pays interest annually and has 20 years remaining to its maturity date. If bonds of similar risk are currently earning 11 percent, the firm's bond will sell for ________ today.

Table 6.2 -(a) Calculate the current value of Bond L. (See Table 6.2) (b) What will happen to the value/price as the bond approaches maturity?

Tangshan Industries has issued a bond which has a $1,000 par value and a 15 percent annual coupon interest rate. The bond will mature in ten years and currently sells for $1,250. Using this information, the yield to maturity on the Tangshan Industries bond is

For an investor who plans to purchase a bond maturing in one year, the primary consideration should be

A foreign bond is a bond issued in a host country's financial market, in the host country's currency, by a foreign borrower.

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

Because a rise in interest rates, and therefore the required return, results in an increase in bond value, bondholders are typically more concerned with dropping interest rates.

To compensate for the uncertainty of future interest rates and the fact that the longer the term of a loan the higher the probability that the borrower will default, the lender typically

The possibility that the issuer of a bond will not pay the contractual interest or principal payments as scheduled is called default risk.

The value of an asset depends on the historical cash flow(s) up to the present time.

Table 6.1 Use the below information to answer the following question(s). -Based on the table 6.1, on this trading day, the number of Ford bonds which changed hands was

Draw a graph of a typical Treasury yield curve and discuss why it usually takes that shape.

If the required return is less than the coupon rate, a bond will sell at

If a corporate bond is issued with a coupon rate that varies directly with the required return, the price of the bond will

The liquidity preference theory suggests that for any given issuer, long-term interest rates tend to be higher than short-term rates due to the lower liquidity and higher responsiveness to general interest rate movements of longer-term securities; this causes the yield curve to be upward-sloping.

Table 6.1 Use the below information to answer the following question(s). -Based on the Table 6.1, what is the last yield for this bond?

Zhen Yi Computers has an outstanding issue of bond with a par value of $1,000, paying 12 percent coupon rate semi-annually. The bond was issued 25 years ago and has 5 years to maturity. What is the value of the bond assuming 14 percent rate of interest?

Jia Hua Enterprises wants to issue sixty 20-year, $1,000 par value, zero-coupon bonds. If each bond is priced to yield 7 percent, how much will Jia Hua receive (ignoring issuance costs) when the bonds are first sold?