Exam 6: Interest Rates and Bond Valuation

Increases in the basic cost of long-term funds or in risk will raise the required return on the bond.

Corporate bonds typically have

The price of a bond with a fixed coupon rate and the market required return have a relationship that is best described as

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?

Any bond rated according to Moody's Ba or lower would be considered speculative or "junk."

A call premium is the amount by which the call price exceeds the market price of the bond.

Danno is trying to decide which of two bonds to buy. Bond H is a 10 percent coupon, 10-year maturity, $1,000 par, January 1, 2000 issue paying annual interest. Bond F is a 10 percent coupon, 10-year maturity, $1,000 par, January 1, 2000 issue paying semiannual interest. The market required return for each bond is 10 percent. When using present value to determine the prices of the bonds, Danno will find that

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 purpose of the restrictive debt covenant that imposes fixed assets restrictions is to limit the amount of fixed-payment obligations.

A Eurobond is a bond issued by an international borrower and sold to investors in countries with currencies other than the country in which the bond is denominated.

To carry out the sinking fund requirements, corporations often make semi-annual or annual payments to trustees, who uses these funds to retire bonds by purchasing them in the marketplace.

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 ________.

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

A feature that allows bondholders to change each bond into a stated number of shares of common stock is called

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 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 ________ feature permits the issuer to repurchase bonds at a stated price prior to maturity.

Violation of any standard or restrictive provision by the borrower gives the lender the right to do all of the following EXCEPT

________ 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.

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?