Exam 8: Bond Valuation and the Structure of Interest Rates

Yield to maturity: Jane Almeda is interested in a 10-year bond issued by Roberts Corp. that pays a coupon of 10 percent annually. The current price of this bond is $1,174.45. What is the yield that Jane would earn by buying it at this price and holding it to maturity? (Round to the closest answer.)

Which one of the following statements is NOT true?

Which one of the following statements is NOT true?

Ascending or normal yield curves are upward-sloping yield curves that occur when an economy is heading into recession.

What is the marketability premium? Why should an issuing firm consider paying this premium?

Most secondary market transactions for corporate bonds take place through dealers in the over-the-counter (OTC) market.

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

As interest rates fall, the prices of bonds decline.

The largest investors in corporate bonds are life insurance companies and pension funds.

Which one of the following statements is NOT true?

Which one of the following statements is NOT true?

The value, or price, of any asset is the present value of its future cash flows.

U.S. Treasury securities do not have any default risk and are the best proxy measure for the risk-free rate.

Which one of the following statements is NOT true?

All other things being equal, a given change in the interest rates will have a greater impact on the price of a low-coupon bond than a higher-coupon bond with the same maturity.

Bond price: Triumph Corp. issued five-year bonds that pay a coupon of 6.375 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? Round to the nearest dollar.

Realized yield: 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 sold the bond today, what would be his realized yield? (Round to the nearest percent.)

Yield to maturity: 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?

Semistrong market efficiency implies that only public information that is available to all investors is reflected in a security's market price.

Yield to maturity: Shawna Carter wants to invest her recent bonus in a four-year bond that pays a coupon of 11 percent semiannually. The bonds are selling at $962.13 today. If she buys this bond and holds it to maturity, what would be her yield? (Round to the closest answer.)