Question 1

Dyl Inc.'s bonds currently sell for $870 and have a par value of $1,000.They pay a $65 annual coupon and have a 15-year maturity,but they can be called in 5 years at $1,100.What is their yield to maturity (YTM)?

Accepted Answer

The answer of Dyl Inc.'s bonds currently sell for $870...

Question 2

Which of the following statements is CORRECT?

Accepted Answer

The answer of Which of the following statements is CORRECT?
...

Question 3

Which of the following statements is CORRECT?

Accepted Answer

When the market interest rate is lower than the coupon rate, there is a higher likelihood of the callable bond being called, which limits potential capital gains for investors. Therefore, the price difference between a callable and noncallable bond would be greater in this scenario.

Question 4

Malko Enterprises' bonds currently sell for $1,020.They have a 6-year maturity,an annual coupon of $75,and a par value of $1,000.What is their current yield?

Accepted Answer

The answer of Malko Enterprises' bonds currently sell for $1,020.They...

Question 5

Suppose a new company decides to raise a total of $200 million,with $100 million as common equity and $100 million as long-term debt.The debt can be mortgage bonds or debentures,but by an iron-clad provision in its charter,the company can never raise any additional debt beyond the original $100 million.Given these conditions,which of the following statements is CORRECT?

Accepted Answer

The statement in option C is correct. The interest rates on both types of bonds would increase as the percentage of mortgage bonds used was increased, but it is not clear how this would affect the firm's total interest expenses. It is possible that the average cost of the debt might not be affected materially by the mix between the two types of bonds. The other statements are incorrect. The percentage of debt represented by mortgage bonds does not necessarily determine the riskiness of the bonds or the firm's total dollar interest charges (Option A). The type of bonds issued does not conclusively determine the total interest expense (Option B and E). The risk borne by each debenture does not necessarily increase with the percentage of debentures, nor does it determine the required rate of return on the debentures (Option D).

Question 6

Which of the following statements is CORRECT?

Accepted Answer

The answer of Which of the following statements is CORRECT?
...

Question 7

Which of the following statements is CORRECT?

Accepted Answer

The answer of Which of the following statements is CORRECT?
...

Question 8

Which of the following statements is CORRECT?

Accepted Answer

Convertible bonds generally have lower coupon rates than non-convertible bonds because they offer the possibility of capital gains through conversion to equity. This increases the attractiveness of the bond to investors and thus allows the issuer to offer a lower coupon rate.

Question 9

Which of the following statements is CORRECT?

Accepted Answer

The answer of Which of the following statements is CORRECT?
...

Question 10

Adams Enterprises' noncallable bonds currently sell for $910.They have a 15-year maturity,an annual coupon of $85,and a par value of $1,000.What is their yield to maturity?

Accepted Answer

The answer of Adams Enterprises' noncallable bonds currently sell for...

Question 11

A company is planning to raise $1,000,000 to finance a new plant.Which of the following statements is CORRECT?

Accepted Answer

When a company raises funds using both first mortgage bonds and debentures, the risk to the debenture holders is higher than the risk to the first mortgage bond holders. Therefore, the company will have to pay a higher interest rate on debentures to compensate for the higher risk. As a result, the interest rate on the first mortgage bonds will be lower than it would be if the entire $1 million were raised by selling first mortgage bonds. The other statements are either incorrect or not necessarily true in all circumstances.

Question 12

Sadik Inc.'s bonds currently sell for $1,300 and have a par value of $1,000.They pay a $105 annual coupon and have a 15-year maturity,but they can be called in 5 years at $1,100.What is their yield to call (YTC)?

Accepted Answer

To calculate the yield to call, we need to find the present value of the bond if it is called in 5 years.
PV = C/(1 + r)^1 + C/(1 + r)^2 + ... + C/(1 + r)^5 + (Par Value)/(1 + r)^5
where
C = annual coupon payment = $105
r = yield to call
Par Value = $1,000
PV = $1,100 (since this is the call price)
$1,100 = $105/(1 + r)^1 + $105/(1 + r)^2 + ... + $105/(1 + r)^5 + $1,000/(1 + r)^5
Using trial and error method or a financial calculator, we find that the yield to call is approximately 5.31%. Therefore, the best answer is B.

Question 13

Bond A has a 9% annual coupon,while Bond B has a 7% annual coupon.Both bonds have the same maturity,a face value of $1,000,an 8% yield to maturity,and are noncallable.Which of the following statements is CORRECT?

Accepted Answer

The answer of Bond A has a 9% annual coupon,while...

Question 14

Which of the following statements is CORRECT?

Accepted Answer

The answer of Which of the following statements is CORRECT?
...

Question 15

Which of the following statements is CORRECT?

Accepted Answer

The answer of Which of the following statements is CORRECT?
...

Question 16

Assume that a noncallable 10-year T-bond has a 12% annual coupon,while a 15-year noncallable T-bond has an 8% annual coupon.Assume also that the yield curve is flat,and all Treasury securities have a 10% yield to maturity.Which of the following statements is CORRECT?

Accepted Answer

The answer of Assume that a noncallable 10-year T-bond has...

Question 17

Morin Company's bonds mature in 8 years,have a par value of $1,000,and make an annual coupon interest payment of $65.The market requires an interest rate of 6.1% on these bonds.What is the bond's price?

Accepted Answer

The answer of Morin Company's bonds mature in 8 years,have...

Question 18

Assuming all else is constant,which of the following statements is CORRECT?

Accepted Answer

The answer of Assuming all else is constant,which of the...

Question 19

Radoski Corporation's bonds make an annual coupon interest payment of 7.35% every year.The bonds have a par value of $1,000,a current price of $920,and mature in 12 years.What is the yield to maturity on these bonds?

Accepted Answer

The answer of Radoski Corporation's bonds make an annual coupon...

Question 20

Ryngaert Inc.recently issued noncallable bonds that mature in 15 years.They have a par value of $1,000 and an annual coupon of 5.7%.If the current market interest rate is 7.0%,at what price should the bonds sell?

Accepted Answer

The answer of Ryngaert Inc.recently issued noncallable bonds that mature...

Quiz 7: Bonds and Their Valuation

Dyl Inc.'s bonds currently sell for $870 and have a par value of $1,000.They pay a $65 annual coupon and have a 15-year maturity,but they can be called in 5 years at $1,100.What is their yield to maturity (YTM) ?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Malko Enterprises' bonds currently sell for $1,020.They have a 6-year maturity,an annual coupon of $75,and a par value of $1,000.What is their current yield?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Adams Enterprises' noncallable bonds currently sell for $910.They have a 15-year maturity,an annual coupon of $85,and a par value of $1,000.What is their yield to maturity?

A company is planning to raise $1,000,000 to finance a new plant.Which of the following statements is CORRECT?

Sadik Inc.'s bonds currently sell for $1,300 and have a par value of $1,000.They pay a $105 annual coupon and have a 15-year maturity,but they can be called in 5 years at $1,100.What is their yield to call (YTC) ?

Bond A has a 9% annual coupon,while Bond B has a 7% annual coupon.Both bonds have the same maturity,a face value of $1,000,an 8% yield to maturity,and are noncallable.Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Assume that a noncallable 10-year T-bond has a 12% annual coupon,while a 15-year noncallable T-bond has an 8% annual coupon.Assume also that the yield curve is flat,and all Treasury securities have a 10% yield to maturity.Which of the following statements is CORRECT?

Morin Company's bonds mature in 8 years,have a par value of $1,000,and make an annual coupon interest payment of $65.The market requires an interest rate of 6.1% on these bonds.What is the bond's price?

Assuming all else is constant,which of the following statements is CORRECT?

Radoski Corporation's bonds make an annual coupon interest payment of 7.35% every year.The bonds have a par value of $1,000,a current price of $920,and mature in 12 years.What is the yield to maturity on these bonds?

Ryngaert Inc.recently issued noncallable bonds that mature in 15 years.They have a par value of $1,000 and an annual coupon of 5.7%.If the current market interest rate is 7.0%,at what price should the bonds sell?