1.) Kholdy Enterprises' outstanding bonds mature in 6 years, have a par value of $1,000, and make an annual coupon payment of $60. The market yield on the bond is currently 10%. What is the bond's price?
a. $ 825.79
b. $ 967.55
c. $1,000.00
d. $1,125.00
e. $1,089.93
2.) Wald Inc.'s bonds currently sell for $1,120 and have a par value of $1,000. They pay an $85 annual coupon and have a 20-year maturity, but they can be called in 5 years at $1,050. What is their YTC?
a. 6.71%
b. 7.34%
c. 5.95%
d. 7.08%
e. 6.49%
3.) Lei Corporation's bonds have a 30-year maturity, a 10% semiannual coupon ($50 coupon payments are made every six months), a face value of $1,000, and cannot be called. The going nominal annual interest rate (rd) for similar semiannual payment bonds of equivalent risk is 7%. What is the bond's price?
a. $1,374.17
b. $1,454.06
c. $ 957.49
d. $1,146.33
e. $1,000.00
4.) Wald Inc.'s bonds currently sell for $1,120 and have a par value of $1,000. They pay an $85 annual coupon and have a 20-year maturity, but they can be called in 5 years at $1,050. What is their YTM?
a. 5.95%
b. 6.49%
c. 7.08%
d. 6.71%
e. 7.34%
5.) Butcher Company plans to issue bonds to raise $10 million to finance expansion. It could use 10-year mortgage bonds backed by the firm's fixed assets, 10-year debentures that are not backed by any specific assets but are backed by the firm's general earning power, or 10-year subordinated debentures that would be subordinated to all of the firm's other debt. If it uses mortgage bonds, they would be rated A by Moody's and S&P, and their market interest rate would be 7.5%. Given this information, which of the following statements is most correct?
a. Given the 7.5% interest rate on the mortgage bonds, the plain debentures might carry an interest rate of 8.0% and the subordinated debentures a rate of 8.5%.
b. Since bond ratings are highly subjective, information about the rating and interest rate on the A-rated bond tells us nothing about how the two types of debentures would be rated, or about their likely interest rates.
c. The subordinated debentures would be rated highest, probably AA.
d. The debentures would be rated highest, probably AA.
e. Given the 7.5% interest rate on the mortgage bonds, the subordinated debentures might carry an interest rate of 8.0% and the plain debentures a rate of 8.5%.
6.) If the market interest rate remains at 5% for the next 29 years, and if Leggio's credit rating remains constant, then the price of its bonds will decrease gradually over time and be exactly $1,000 at maturity. True or false?
a. True
b. False
7.) Assume Lei's bonds paid interest annually rather than semiannually. You could find the value of these bonds, in a market where the going nominal annual rate on semiannual payment bonds is 7%, by finding the effective annual rate, which is 7.1225%, and then discounting the annual bond's cash flows by this effective rate. The annual payment bonds would have a value of $1,352.72 versus $1,374.17. True or false?
a. True
b. False
8.) Wald Inc.'s bonds currently sell for $1,120 and have a par value of $1,000. They pay an $85 annual coupon and have a 20-year maturity, but they can be called in 5 years at $1,050. What return would an investor most likely earn, if interest rates remain at current levels for the foreseeable future?
a. 7.34%
b. 6.71%
c. 7.08%
d. 5.95%
e. 6.49%
9.) Leggio Inc. issued bonds with a 30-year maturity one year ago. The bonds have a 6% coupon, make one payment per year, and sold at their $1,000 par value at issue because the going market rate at the time was 6%. Now, one year later, the market rate has declined from 6% to 5%. At what price should Leggio's bonds now sell?
a. $1,151.41
b. $1,000.00
c. $1,067.54
d. $ 911.22
e. $1,209.10