Quirk Drugs sold an issue of 30-year, $1,000 par value bonds to the public that carry a 10.85% coupon rate, payable semiannually. It is now 10 years later, and the current market rate of interest is 9.00%. If interest rates remain at 9.00% until Quirk's bonds mature, what will happen to the value of the bonds over time?
A) The bonds will sell at a premium and decline in value until maturity.
B) The bonds will sell at a discount and rise in value until maturity.
C) The bonds will sell at a premium and rise in value until maturity.
D) The bonds will sell at a discount and fall in value until maturity.
If the market price of a bond increases, then
A) the yield to maturity decreases.
B) the coupon rate increases.
C) the yield to maturity increases.
D) none of the above.
If current market interest rates rise, what will happen to the value of outstanding bonds?
A) It will rise.
B) It will fall.
C) It will remain unchanged.
D) There is no connection between current market interest rates and the value of outstanding bonds.
If current market interest rates fall, what will happen to the value of outstanding bonds?
A) It will rise.
B) It will fall.
C) It will remain unchanged.
D) There is no connection between current market interest rates and the value of outstanding bonds.
Cassel Corp. bonds pay an annual coupon rate of 10%. If investors' required rate of return is now 8% on these bonds, they will be priced at
A) par value.
B) a premium to par value.
C) a discount to par value.
D) cannot be determined from information given.
Which of the following statements is true?
A) A bond that has a rating of AA is considered to be a junk bond.
B) A bond will sell at a premium if the prevailing required rate of return is less than the bond's coupon rate.
C) A zero coupon is a bond that is secured by a lien on real property.
D) The legal document that describes all of the terms and conditions of a bond issue is called a debenture agreement.
Which of the following statements is true?
A) When investors' required rate of return equals the bond's coupon rate, then the market value of the bond may be selling at par value.
B) When investors' required rate of return exceeds the bond's coupon rate, then the market value of the bond will be greater than par value.
C) When investors' required rate of return is less than the bond's coupon rate, then market value of the bond will be greater than par value.
D) When investors' required rate of return is less than the bond's coupon rate, then the market value of the bond will be less than par value.
