Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:Which of the following statements is TRUE regarding bonds?
O A. At maturity, lenders repay a bond's par value to borrowers.
O B. Ceteris paribus, bonds with higher YTMS would have higher prices.
c. Borrowers purchase bonds.
O D. If you anticipate a decline in market interest rates, you should purchase long-term zero-coupon bonds.
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- B. TRUE OR FALSE. Use the separate answer sheet. 1. If the effective (market) interest rate is less than the coupon (stated) interest rate on the date that bonds are sold, the bond price will be less than the face value of the bonds. 2. The effective interest rate method of amortizing bond discount or premium can only be used when it doesn't materially differ from the straight-line method, as the straight-line method is considered GAAP. 3. 4. 5. 6. 7. 678 8. 9. 10. A stock dividend converts earned capital into contributed capital, but total stockholder equity doesn't change. A bond's carrying value at maturity should equal its par or face value. Most corporations set a par value for their common shares at a fairly large number, such as $100 per share, in order to minimize legal liability on the part of shareholders. Treasury shares are considered to be issued and outstanding. Paid-in capital in excess of par value will be created when a 50% stock dividend is declared. All corporate…arrow_forwardCoupon payments are fixed, but the percentage return that investors receive varies based on market conditions. This percentage return is referred to as the bond’s yield. Q1. Yield to maturity (YTM) is the rate of return expected from a bond held until its maturity date. However, the YTM equals the expected rate of return under certain assumptions. Which of the following is one of those assumptions? a. The bond is callable. b. The probability of default is zero. Consider the case of RTE Inc: Q2. RTE Inc. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price is $1,130.35. However, RTE Inc. may call the bonds in eight years at a call price of $1,060. What are the YTM and the yield to call (YTC) on RTE Inc.’s bonds? Value YTM ? YTC ? Q3. If interest rates are expected to remain constant, what is the best estimate of the remaining life left for RTE Inc.’s bonds? a. 8 years b. 10…arrow_forwardPlease help me.thank youarrow_forward
- The yield to maturity on a bond a is fixed in the indenture. b is lower for higher-risk bonds. c is the required return on the bond. d is generally equal to the coupon interest rate.arrow_forwardAll else the same, if interest rates fall, then 1. bond prices will rise II. coupon payments on floating rate bonds will fall III. the percentage price change for short-term bonds will be greater than for long-term bonds IV. the percentage price change for high coupon bonds will be greater than for low coupon bonds Select one: O a. I, III, and IV only O b.ll and IV only Ocland Il only O d. Ill and IV only O e.1, 1l and Ill onlyarrow_forwardWe know that a vanilla bond with a coupon rate below the market rate of interest will sell for a discount and that a vanilla bond with a coupon rate above the market rate of interest will sell for a premium. What kind of bond or loan will sell at its par valueregardless of what happens to the market rate of interest?arrow_forward
- The longer the term a bond has before it matures, ______________ will be the affect on its value due to a 1% change in market interest rates. Select one: a. The lower b. Either A or B depending on the direction of the interest change c. Neither A or B, since bond maturity has no impact on interest rate sensitivity. d. The greaterarrow_forwardWhich of the following statements is correct assuming same market rates for all maturities (flat yield curve)? e a Extendible bonds allow bond issuer to extend the maturity date. O b. Callable bonds give the bond issuer an option to call the bond back before the maturity date at a predetermined price. Oc. When the market yield is equal to a bond's stated coupon rate, the bond's current yield is greater than its coupon yield. Od. The cash price plus the accrued interest on the bond is the quoted price of the bond. Current yield is the ratio of annual coupon payment divided by the par value. o e.arrow_forwardWhich of the following is FALSE regarding bonds? Long term bonds have greater interest rate risk than do short term bonds. A bond indenture describes the terms of the bond issue. Bonds represent ownership in the company. if interest rates in the market go up, the present value of existing bonds goes down. A bond issuer is legally required to make the interest payments and repay the par value at maturity. Previous Page Next Page Page 12 of 30arrow_forward
- 1. Types of bonds Fixed-income securities consist of debt instruments and preferred stock. Bonds are debt securities in which a borrower promises to pay a specified interest rate and principal at a future date. Which of the following statements about Treasury bonds is the most accurate? O Treasury bonds have a very small amount of default risk, so they are not completely riskless. O Treasury bonds are completely riskless. O Treasury bonds are not completely riskless, since their prices will decline when interest rates rise. Based on the information given in the following statement, answer the questions that follow: In July 2009, Walmart sold 100 billion yen of five-year samurai bonds. Lead managers in the deal were Mizuho Securities, BNP Paribas, and Mitsubishi UFJ Securities. Who is the issuer of the bonds? O Mitsubishi UFJ Securities O BNP Paribas O Walmart What type of bonds are these? O Corporate bonds O Municipal bonds O Government bonds O Oarrow_forwardWhich statement is false? O A. As the term of a bond approaches zero, the price approaches kar. O B. For corporate and government bonds, the coupon payments amortize the princi OC. Overall, bond prices are less volatile than stock prices. O D. The coupon on a bond is expressed as a percentage of face value. O E. Corporate bonds can be bought and sold in the secondary market. Reset Selectionarrow_forwardUse the following information to answer this question. In your answers, ignore the negative sign, if any. Yield on Bond A Yield on Bond B Yield on Bond C 5.50% 6.50% 3.50% a) What is the yield spread between bonds A and B (in basis points)? b) What is the relative yield spread between bonds B and C? Bond C is your basis. c) What is the yield ratio between A and C? Bond C is your basis.arrow_forward
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