YTM on a Bond. Golf Galore's non-callable bonds currently sell for $1,220. They have a 12-year maturity, an annual coupon of $75, and a par value of $1,000 (reminder: the par value is $1000 unless stated otherwise). What is their annual yield to maturity or YTM?

2.51%

5.02%

5.96%

6.25%

7.17%

If the company encounters financial difficulty causing its bond rating to decline from AAA to AA, the next coupon payment on a "typical" bond would be expected to:

decline

increase

not change

not enough information to determine

Investors buy bonds for the following reason(s):

receive income from the coupon payments

to take advantage of any opportunities for price appreciation

to take advantage of any changes in interest rates

all of the answer choices are correct

Suppose you purchased bonds issued by ABC Corporation at 110% of par (remember: par is $1000 unless told otherwise). The firm promises to pay an 8% annual coupon on a semi-annual basis and to pay the par value at maturity, which is 10 years from today. Each coupon payment of ____ is commonly called the annuity portion of this bond and the maturity value of ______ is commonly called the lump sum component.

$80; $1000

$80; $1100

$40; $1000

$40; $1100

Suppose that XYZ Corporation has previously issued corporate bonds, preferred stock and common stock. Now, the firm has just received a change in its bond rating to AA from AAA. This means that a new bond issue by the firm will:

pay a higher coupon rate than firms with a AAA rating for the same type of bond issue

pay a lower coupon rate than firms with a AAA rating for the same type of bond issue.

the coupon rate will be the same as other firms with ratings considered "investment grade."

the firm will not be able to issue any new bonds until its rating returns to AAA.

none of the above as bond ratings are no longer relevant.