Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Financial Management Expert

problem 1: If a firm increases capital by selling new bonds, it could be called the issuing firm, and the coupon rate is usually set equivalent to the required rate on bonds of equal risk.

a) True
b) False

problem 2: Which of the given statements is CORRECT?

a) The time to maturity doesn’t affect the change in the value of a bond in response to a given change in interest rates.
b) You hold two bonds. One is a 10-year, zero coupon, bond and the other is a 10-year bond which pays a 6% annual coupon. The similar market rate, 6%, applies to both bonds. If the market rate increases from the current level, the zero coupon bond will experience the smaller percentage decline.
c) You hold two bonds, a 10-year, zero coupons, issue and a 10-year bond which pays a 6% annual coupon. The same market rate, 6%, applies to both bonds. If the market rate increases from its current level, the zero coupon bond will experience the larger percentage decline.
d) The shorter the time to maturity, the bigger the change in the value of a bond in response to a given change in interest rates, other things held constant.
e) The longer the time to maturity, the smaller the change in the value of a bond in response to a particular change in interest rates.

problem 3: Grossnickle Corporation issued 20-year, noncallable, 7.5% annual coupon bonds at their par value of $1,000 one year ago. Nowadays, the market interest rate on such bonds is 5.5%. What is the present price of the bonds, given that they now have 19 years to maturity?

a) $1,113.48
b) $1,142.03
c) $1,232.15
d) $1,171.32
e) $1,201.35

problem 4: Three $1,000 face values, 10-year, noncallable, bonds have the similar amount of risk, and hence their YTMs are equal.  Bond 8 has an 8% annual coupon; Bond 10 has a 10% annual coupon, and Bond 12 has a 12% annual coupon. Bond 10 sells at par.

Supposing that interest rates remain constant for the next 10 years, which of the given statements is CORRECT?

a) Bond 8 sells at a discount (its price is less than par), and its price is expected to rise over the next year.
b) Bond 8’s current yield will rise each year.
c) As the bonds have the same YTM, they must all have the same price, and since interest rates are not expected to change, their prices must all remain at their current levels until maturity.
d) Bond 12 sells at a premium (its price is bigger than par), and its price is expected to rise over the next year.
e) Over the next year, Bond 8’s price is expected to reduce, Bond 10’s price is expected to stay the same, and Bond 12’s price is expected to rise.

problem 5: Tucker Corporation is planning to issue new 20-year bonds. The current plan is to make the bonds non-callable, however this might be changed. If the bonds are made callable after 5 years at a 5% call premium, how would this influence their required rate of return?

a) The required rate of return would rise as the bond would then be more risky to a bondholder.
b) Because of the call premium, the required rate of return would refuse.
c) There is no reason to expect a change in the required rate of return.
d) The required rate of return would refuse as the bond would then be less risky to a bondholder.
e) It is not possible to say without more information.

problem 6: A call provision gives bondholders the right to demand, or "call for," repayment of a bond. Usually, companies call bonds if interest rates rise and do not call them if interest rates decline.

a) True
b) False

problem 7: 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 needs an interest rate of 8.2% on such bonds. What is the bond's price?

a) $925.62
b) $948.76
c) $903.04
d) $972.48
e) $996.79

problem 8: McCue Inc.'s bonds presently sell for $1,250. They pay a $90 annual coupon; have a 25-year maturity, and a $1,000 par value; however they can be called in 5 years at $1,050.

Suppose that no costs other than the call premium would be incurred to call and refund the bonds, and as well suppose that the yield curve is horizontal, with rates expected to remain at current levels on into the future. What is the difference between this bond's YTM and its YTC?  (Subtract the YTC from the YTM; it is possible to get a negative answer.)

a) 2.88%
b) 3.17%
c) 3.48%
d) 3.83%
e) 2.62%

problem 9: A 10-year corporate bond has an annual coupon of 9%. The bond is presently selling at par ($1,000).  Which of the given statements is CORRECT?

a) The bond’s yield to maturity is above 9%.
b) The bond’s present yield is above 9%.
c) If the bond’s yield to maturity declines, the bond will sell at a discount.
d) The bond’s expected capital gains yield is zero.
e) The bond’s present yield is less than its expected capital gains yield.

problem 10: Under normal conditions, which of the given would be most likely to increase the coupon rate needed for a bond to be issued at par?

a) Adding additional restrictive covenants that limit management's actions.
b) Adding a call provision.
c) The rating agencies change the bond's rating from Baa to Aaa.
d) Making the bond a first mortgage bond rather than a debenture.
e) Adding up a sinking fund.

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M92355

Have any Question? 


Related Questions in Financial Management

Lobo banks normally provides term loans that require

Lobo Banks normally provides term loans that require repayment in a series of equal annual installments. If a $10 million loan is made, what would be the annual end-ofyear payments, assuming the following? a. A 10 percen ...

Performance inc is faced with choosing between two mutually

Performance Inc. is faced with choosing between two mutually exclusive projects with differing lives. It requires a return of 12 percent on these projects. Project A requires an initial outlay at time 0 of $5,000,000 and ...

A company is trying to use one of the following source of

A company is trying to use one of the following source of finance, inorder to enhance its business. hence, Analyze the costs of obtaining finance from the following sources. 1. Bank Loan (eg. admin costs, application cos ...

Firms avoid seasoned equity offerings to raise external

Firms avoid seasoned equity offerings to raise external funds and use financial leverage instead. Why? A) new equity dilutes the current dividends per share of the firm B) the bond market is more efficient than the equit ...

Suppose that the current exchange rate between the yen and

Suppose that the current exchange rate between the yen and the dollar is ¥100 = $1 and that the interest rate is 4% on a one-year bond in Japan and 3% on a comparable bond in the United States. According to the interest- ...

Assume a firmrsquos home currency is british pounds let the

Assume a firm’s home currency is British pounds. Let the current spot FX rate be 1.70 $/£ and the expected revenues be £500 per year. Assume that if the FX value of the pound changes to 1.80 $/£, the expected revenue in ...

An investment has an installed cost of 573382 the cash

An investment has an installed cost of $573,382. The cash flows over the four-year life of the investment are projected to be $202,584, $246,318, $194,674, and $162,313. If the discount rate is zero, what is the NPV? (Do ...

Assume that the expected rate of return on the market

Assume that the expected rate of return on the market portfolio is 23% and the rate of return on T-bills (the risk-free rate) is 5%. The standard deviation of the market return is 25%. Assume that the market portfolio is ...

The stock of nogro corporation is currently selling for 25

The stock of Nogro Corporation is currently selling for $25 per share. Earnings per share in the coming year are expected to be $2. The company has a policy of paying out 40% of its earnings each year in dividends. The r ...

Assume that a 5-year treasury note has no maturity risk

Assume that a 5-year Treasury note has no maturity risk premium, and that the real, risk-free rate of interest is 3.5 percent. If the T-note carries a yield to maturity of 10 percent, and if the expected average inflatio ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro