Exam 8: Bond Valuation and the Structure of Interest Rates

The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments equal to the price of the bond.

The three economic factors that affect the shape of the yield curve are:

Shana Norris wants to buy five-year zero coupon bonds with a face value of $1,000. Her opportunity cost is 8.5 percent. Assuming annual compounding, what would be the current market price of these bonds? (Round your answer to the nearest dollar.)

Which one of the following statements about bonds is NOT true?

Vanilla bonds have coupon payments that are fixed for the life of the bond, with the principal being repaid at maturity.

In calculating the current price of a bond paying semiannual coupons, one needs to

Which one of the following statements about vanilla bonds is NOT true?

A bond has a $1,000 par value, makes annual interest payments of $100, has 5 years to maturity, cannot be called, and is not expected to default. The bond should sell at a premium if interest rates are below 10% and at a discount if interest rates are greater than 10%.

What economic factors affect the level and the shape of the yield curve? Explain.

Higher coupon bonds have greater interest rate risk.

Triumph Corp. issued five-year bonds that pay a coupon of 6.375 percent annually. The current market rate for similar bonds is 8.5 percent. How much will you be willing to pay for Triumph's bond today? (Do not round intermediate computations. Round your final answer to the nearest dollar.)

The largest investors in corporate bonds are state government agencies.

Upward-sloping yield curves often occur before the beginning of recession.

Which of the following statements is true?

Alice Trang is planning to buy a six-year bond that pays a coupon of 10 percent semiannually. Given the current price of $878.21, what is the yield to maturity on these bonds? (Round to the closest answer.)

Highland Corp., a U.S. company, has a five-year bond whose yield to maturity is 6.5 percent. The bond has no coupon payments. What is the price of this zero coupon bond?

Bonds sell at a premium when the market rate of interest is:

Which of the following statements is most true about zero coupon bonds?

Downward-slopping yield curves usually occur

Kevin Oh is planning to sell a bond that he owns. This bond has four years to maturity and pays a coupon of 10 percent on a semiannual basis. Similar bonds in the current market have a yield to maturity of 12 percent. What will be the price that he will get for his bond? (Do not round intermediate computations. Round your final answer to the nearest dollar.)