Marshall Manufacturing has a bond outstanding that was issued 20 years ago at a coupon rate of 9%. The $1,000 par value bond pays interest semiannually and was originally issued with a term of 30 years. If today's interest rate is 14%, what is the value of the bond today?
A) $654.98
B) $735.15
C) $814.42
D) $941.87
A $1,000 par value bond is currently listed as selling at 92 1/8. This means
A) that you can buy the bond for $92.125.
B) that you can buy the bond for $921.25.
C) that if you purchase the bond today, you will receive $921.25 when the bond matures.
D) none of the above.
You paid $865.50 for a corporate bond that has a 6.75% coupon rate. What is the bond's current yield?
A) 8.375%
B) 7.800%
C) 15.001%
D) 6.667%
A $1,000 par value bond with a 12% coupon rate currently selling for $825 has a current yield of
A) 14.55%.
B) 12.44%.
C) 7.27%.
D) 5.61%.
When a bond's coupon rate is higher than the required rate of return, the bond
A) will sell at a discount from par.
B) will sell at a premium over par.
C) may sell at either a discount or a premium.
D) will sell at par value.
Miller Motorworks has a $1,000 par value, 8% annual coupon bond with interest payable semiannually with a remaining term of 15 years. The annual market yield on similar bonds is 6%. This bond will at a discount from par.
Answer: FALSE
Lambda Co. has bonds outstanding that mature in 10 years. The bonds have $1,000 par value, pay interest annually at a rate of 9%, and have a current selling price of $1,125. The yield to maturity on the bonds is less than 9%.
Answer: TRUE
Generic, Inc. has bonds outstanding that mature in 20 years. The bonds have $1,000 par value, pay interest annually at a rate of 10%, and have a current selling price of $875.25. The current yield on the bonds is 11.63%.
Answer: FALSE
A basis point is equal to one hundredth of a percentage point.
Answer: TRUE
A bond's "spread" refers to the difference between it's Moody's rating and its Standard & Poors rating.
Answer: FALSE
A bond issued by Pomme Computers has a coupon rate of #5 paid semi-annually. If the market's required rate of return on this bond is also 3%, the bond will sell at par value.
Answer: TRUE
Dry Seal plans to issue bonds to expand operations. The bonds will have a par value of $1,000, a 10-year maturity, and a coupon interest rate of 9%, paid semiannually. Current market conditions are such that the bonds will be sold to net $937.79. The yield-to-maturity of these bonds is 10%.
Answer: FALSE
You purchased Photon, Inc. bonds exactly one year ago today for $875. During the latest year, you received $65 in interest on the bonds. The current yield on these bonds is 6.5%.
Answer: FALSE
A AAA rated bond's yield to maturity will be very close to it's expected yield.
Answer: TRUE
The longer the time to maturity, the more sensitive a bond's price to changes in market interest rates.
Answer: TRUE
A bond's value equals the present value of interest and principal the owner will receive.
Answer: TRUE
The higher the bond rating, the more default risk associated with the bond.
Answer: FALSE
Bond ratings measure the interest rate risk of a given bond issue.
Answer: FALSE
When referring to bonds, expected rate of return and yield to maturity are often used interchangeably.
Answer: TRUE
Investment grade bonds are rated BB or lower.
Answer: FALSE
The current yield of a bond will equal its coupon rate when the bond is selling at par value.
Answer: TRUE
The better the bond rating, the lower the rate of return demanded in the capital markets.
Answer: TRUE
The sensitivity of a bond's value to changing interest rates depends on both the bond's time to maturity and its pattern of cash flows.
Answer: TRUE
