Question 1

The following factors may affect a bond rating:

Accepted Answer

All of the above factors may affect a bond rating. Security provisions and indenture provisions affect the level of protection for bondholders in the event of default, while expected trends of industry operations can impact the financial health and stability of the issuer. All of these factors are taken into consideration when determining a bond rating.

Question 2

Which of the following statements is most correct?

Accepted Answer

Most of the annual funds raised from security issues come from corporate bond sales, as they are a significant source of financing for corporations.

Question 3

RJR Nabisco recently experienced a market reevaluation due to a number of tobacco lawsuits.The firm has a bond outstanding with 15 years to maturity,and a coupon rate of 8%,with interest being paid semiannually.The required yield to maturity has risen to 16%.What is the price of the RJR Nabisco bond?

Accepted Answer

The answer of RJR Nabisco recently experienced a market reevaluation...

Question 4

Bond ratings are paid for by:

Accepted Answer

Bond ratings are paid for by the issuing firm, as they are seeking to have their creditworthiness evaluated by an independent credit rating agency. The ratings provide information to investors about the risk associated with investing in the bond, and the firm pays for this service in order to attract investors and potentially lower their cost of borrowing.

Question 5

Which of the following bonds has the greatest interest rate risk?

Accepted Answer

The answer of Which of the following bonds has the...

Question 6

A (n)_____________ gives the bondholder a claim to specific assets (identified through serial numbers)such as railroad cars or airplanes.

Accepted Answer

An equipment trust certificate gives the bondholder a claim to specific assets, such as railroad cars or airplanes, which are identified through serial numbers. This provides collateral to back the bond issue.

Question 7

You are trying to determine the fair price to pay for a share of Philip Morris.If you buy this stock,you plan to hold it for a year.At the end of the year,you expect to receive a dividend of $5.50 and to sell the stock for $154.The discount rate for Philip Morris stock is 16%.What should be the price of this stock?

Accepted Answer

The fair price of the stock can be calculated using the dividend discount model for a one-year holding period, which is given by the formula: Price = (Dividend + Expected Price) / (1 + Discount Rate). Plugging in the values: Price = ($5.50 + $154) / (1 + 0.16) = $137.50.

Question 8

If a bond with a par value of $500 and a call premium of 6% is called in before its maturity date,the firm would have to remit the following to the bondholders:

Accepted Answer

If a bond is called before its maturity date, the call premium is the extra amount the bondholder will receive in addition to the par value of the bond. So, in this case, the call premium is 6% of the par value of $500, which is $30. Therefore, the firm would have to remit $530 to the bondholders ($500 for the par value and $30 for the call premium).

Question 9

Which of the following constitute default on a bond?

Accepted Answer

Default on a bond can occur through nonpayment of par value, nonpayment of coupon, or violation of the indenture. Therefore, all of the above options constitute default on a bond.

Question 10

An example of a collateralized bond is:

Accepted Answer

A collateralized bond is a bond that is backed by collateral such as assets, receivables or property. Therefore, the best choice for a collateralized bond would be option A, which is a bond backed by credit card receivables. Options B and C are not necessarily collateralized bonds, as they may not be backed by any specific assets or collateral.

Question 11

Which of the following statements is most correct?

Accepted Answer

The answer of Which of the following statements is most...

Question 12

Consolidated Edison has just paid an annual dividend of $3 per share.If the expected growth rate for Con Ed is 10%,and your required rate of return is 16%,how much are you willing to pay for this stock?

Accepted Answer

The answer of Consolidated Edison has just paid an annual...

Question 13

An unrated bond:

Accepted Answer

Unrated bonds do not have a credit rating, which means their risk level is not officially assessed. They are not necessarily perceived as having lower risk, nor are they specifically termed "debentures." They may have higher yields to attract investors due to the uncertainty of their risk.

Question 14

Which of the following statements is false?

Accepted Answer

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

Question 15

An "r" bond rating means:

Accepted Answer

The answer of An "r" bond rating means:
...

Question 16

A speculative (junk)bond issue as rated under Standard & Poor's would be rated ______ or below:

Accepted Answer

The answer of A speculative (junk)bond issue as rated under...

Question 17

To accurately compare the rate of return on one investment with another,they should be:

Accepted Answer

To accurately compare the rate of return on one investment with another, they should be measured over equal time periods. This allows for a meaningful comparison of the returns earned over that period of time. If the investments are of different sizes or held for different time periods, it can skew the comparison and make it difficult to determine which investment is truly more profitable. Holding the investments for more than one year may be relevant for tax purposes, but it is not a key factor in comparing their rate of return.

Question 18

The three types of risk faced by investors in domestic bonds include all of the following EXCEPT:

Accepted Answer

Political risk is a type of risk faced by investors in international bonds, not domestic bonds. The other three types of risks (credit risk, interest rate risk, and reinvestment rate risk) are all relevant to domestic bonds.

Question 19

Which of the following are not bond rating agencies?

Accepted Answer

Standard and Poor's, Fitch's, and Duff and Phelps are all bond rating agencies.

Question 20

Chrysler has a bond outstanding with eight years remaining to maturity,a coupon rate of 5%,and semiannual payments.If the market price of the Chrysler bond is $729.05,what is the yield to maturity?

Accepted Answer

Using a financial calculator or Excel function, we can find that the yield to maturity (YTM) of the Chrysler bond is 10%. Therefore, the best choice is C.

Quiz 10: Bonds and Stocks: Characteristics and Valuation

The following factors may affect a bond rating:

Which of the following statements is most correct?

Bond ratings are paid for by:

Which of the following bonds has the greatest interest rate risk?

A (n) _____________ gives the bondholder a claim to specific assets (identified through serial numbers) such as railroad cars or airplanes.

If a bond with a par value of $500 and a call premium of 6% is called in before its maturity date,the firm would have to remit the following to the bondholders:

Which of the following constitute default on a bond?

An example of a collateralized bond is:

Which of the following statements is most correct?

Consolidated Edison has just paid an annual dividend of $3 per share.If the expected growth rate for Con Ed is 10%,and your required rate of return is 16%,how much are you willing to pay for this stock?

An unrated bond:

Which of the following statements is false?

An "r" bond rating means:

A speculative (junk) bond issue as rated under Standard & Poor's would be rated ______ or below:

To accurately compare the rate of return on one investment with another,they should be:

The three types of risk faced by investors in domestic bonds include all of the following EXCEPT:

Which of the following are not bond rating agencies?

Chrysler has a bond outstanding with eight years remaining to maturity,a coupon rate of 5%,and semiannual payments.If the market price of the Chrysler bond is $729.05,what is the yield to maturity?