Exam 8: Bond Valuation and the Structure of Interest Rates

Yield to maturity: Huan Zhang bought a 10-year bond that pays 8.25 percent semiannually for $911.10. What is the yield to maturity on this bond?

Bond price: 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? (Round to the nearest dollar.)

Bond price: Briar Corp is issuing a 10-year bond with a coupon rate of 7 percent. The interest rate for similar bonds is currently 9 percent. Assuming annual payments, what is the present value of the bond? (Round to the nearest dollar.)

Inverted yield curves are observed when

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

Marketability is the ability of an investor

In an efficient capital market,

Effective annual yield: 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?

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

Which ONE of the following statements is true?

Zero coupon bonds: Robertsons, Inc., is planning to expand ita specialty stores into five other states and finance the expansion by issuing 15-year zero coupon bonds with a face value of $1,000. If your opportunity cost is 8 percent and similar coupon-bearing bonds will pay semiannually, what will be the price at which you will be willing to purchase these bonds? (Round to the nearest dollar.)

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

Yield to maturity: Nathan Akpan is planning to invest in a seven-year bond that pays annual coupons at a rate of 7 percent. It is currently selling at $927.23. What is the current market yield on such bonds? (Round to the closest answer.)

Prices in the corporate bond market tend to be more volatile than securities sold in markets with greater trading volumes.

If market prices reflect all relevant information about securities at a particular point in time, it is called operational efficiency.