Exam 8: Bond Valuation and the Structure of Interest Rates

Jane Thorpe has been offered a seven-year bond issued by Barone, Inc., for a price of $943.22. The bond has a coupon rate of 9 percent and pays the coupon semiannually. Similar bonds in the market have a yield to maturity of 10 percent today. Should she buy the bonds at the offered price? (Do not round intermediate computations. Round your final answer to the nearest dollar.)

Which of the following statements is true?

The largest investors in corporate bonds are big institutional investors such as life insurance companies and pension funds.

Which of the following statements is true?

John Wong purchased a five-year bond today at $1,034.66. The bond pays 6.5 percent semiannually. What will be his yield to maturity? (Round to the closest answer.)

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

If a bond's coupon rate is equal to the market rate of interest, then the bond will sell:

Convertible bonds can be converted into shares of common stock at some predetermined ratio at the discretion of the bondholder.

Which one of the following statements is NOT true?

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

A thin market for a security implies a high frequency of trades for that type of security in the markets.

Suppose an investor earned a semiannual yield of 6.4 percent on a bond paying coupons twice a year. What is the effective annual yield (EAY) on this investment? (Round to two decimal places.)

Rachel McGovern bought a 10-year bond for $921.77 seven years ago. The bond pays a coupon of 15 percent semiannually. Today, the bond is priced at $961.22. If she sold the bond today, what would be her realized yield? (Round to the nearest percent.)

Which of the following statements is true?

Why does the default risk premium vary over the business cycle?

It is easy for individuals to trade in the corporate bond market because:

Jorge Cabrera paid $980 for a 15-year bond 10 years ago. The bond pays a coupon of 10 percent semiannually. Today, the bond is priced at $1,054.36. If he sells the bond today, what will be his realized yield? (Round to the nearest percent.)

Jeremy Kohn is planning to invest in a 10-year bond that pays a 12 percent coupon. The current market rate for similar bonds is 9 percent. Assume semiannual coupon payments. What is the maximum price that should be paid for this bond? (Do not round intermediate computations. Round your final answer to the nearest dollar.)

If investors believe inflation will be increasing in the future, the prevailing yield curve will be downward sloping.

Jenny LePlaz is looking to invest in a five-year bond that pays annual coupons of 6.25 percent and currently sells at $912.34. What is the current market yield on such bonds? (Round to the closest answer.)