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Exam 6: Valuing Bonds

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Question 31

Multiple Choice

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Which of the following statements is FALSE?

A) If a bond trades at a premium,its yield to maturity will exceed its coupon rate.
B) A bond that trades at a premium is said to trade above par.
C) When a coupon-paying bond is trading at a premium,an investor's return from the coupons is diminished by receiving a face value less than the price paid for the bond.
D) Holding fixed the bond's yield to maturity,for a bond not trading at par,the present value of the bond's remaining cash flows changes as the time to maturity decreases.

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Question 32

Multiple Choice

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The credit spread on BBB-rated corporate bonds is:

A) 1.0%
B) 1.5%
C) 2.5%
D) 4.1%

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Question 33

Multiple Choice

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Which of the following formulas is INCORRECT?

The price today of a three-year default-free security with a face value of $1000 and an annual coupon rate of 4% is closest to:

The YTM of a 3 year default free security with a face value of $1000 and an annual coupon rate of 6% is closest to:

Which of the following statements is FALSE?

Consider a bond that pays annually an 8% coupon with 20 years to maturity.The percentage change in the price of the bond if its yield to maturity increases from 5% to 7% is closest to:

Which of the following statements is FALSE?

Use the information for the question(s) below. The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 15 years.The bond certificate indicates that the stated coupon rate for this bond is 8% and that the coupon payments are to be made semiannually. -How much will each semiannual coupon payment be?

Assuming that Luther's bonds receive a AAA rating,the number of bonds that Luther must issue to raise the needed $25 million is closest to:

The amount that the price of bond "D" will change if its yield to maturity increases from 8% to 9% is closest to:

Use the table for the question(s) below. Consider the following four bonds that pay annual coupons: -The percentage change in the price of the bond "C" if its yield to maturity increases from 9% to 10% is closest to:

Which of the following statements is FALSE?

Use the information for the question(s) below. Luther Industries needs to raise $25 million to fund a new office complex.The company plans on issuing ten-year bonds with a face value of $1000 and a coupon rate of 7.0% (annual payments) .The following table summarizes the YTM for similar ten-year corporate bonds of various credit ratings: -Assuming that Luther's bonds receive a AAA rating,the price of the bonds will be closest to:

Which of the following statements is FALSE?

Use the information for the question(s) below. The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 15 years.The bond certificate indicates that the stated coupon rate for this bond is 8% and that the coupon payments are to be made semiannually. -Assuming the appropriate YTM on the Sisyphean bond is 7.5%,then this bond will trade at

A corporate bond which receives a BBB rating from Standard and Poor's is considered:

The YTM of a 4 year default free security with a face value of $1000 and an annual coupon rate of 5.25% is closest to:

Consider a bond that pays annually an 8% coupon with 20 years to maturity.The amount that the price of the bond will change if its yield to maturity increases from 5% to 7% is closest to:

Wyatt Oil is contemplating issuing a 20-year bond with semiannual coupons,a coupon rate of 7%,and a face value of $1000.Wyatt Oil believes it can get a BBB rating from Standard and Poor's for this bond issue.If Wyatt Oil is successful in getting a BBB rating,then the issue price for these bonds would be closest to: