PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 23, Problem 5PS
Default option* Other things equal, would you expect the difference between the price of a Treasury bond and a corporate bond to increase or decrease with
- a. The company’s business risk?
- b. The degree of leverage?
- c. The time to maturity?
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Students have asked these similar questions
The time value of money is used in calculating bond prices because:
Group of answer choices
A - The company might choose to repay the bonds prior to their maturity date
B - Bond investors receive future payments and purchase bonds with current dollars
C - The amount to be repaid at maturity will change as market rates change
D - Cash interest payments to bondholders will change as market rates change
What happens to Bond prices, quantities, and interest rates if (Make sure to include the supply and demand graph for bonds for each question :
a) Decrease in wealth
b) Increase in risk
c) Decrease in liquidity
2. Bond valuation
The proces
value of the cash flows that the security will generate in the future
s of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present
There is a consistent and predictable relationship between a bond's coupon rate, its par value, a bondholder's required return, and the bond's
resulting intrinsic value.
value and its par value. These result from the relationship between a bond's coupon rate and a bondholder's required rate of return
Trading at a discount, trading at a premium, and trading at par refer to particular relationships between a bond's intrinsic
pay, and a bondholder's required return
Remember, a bond's coupon rate partially determines the interest-based return that a bond
reflects the return that a bondholder
to receive from a given investment.
The mathematics
of bond valuation imply a predictable relationship between the bond's coupon rate, the bondholder's required return,…
Chapter 23 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 23 - Expected yield You own a 5% bond maturing in two...Ch. 23 - Bond ratings In February 2018, Aaa bonds yielded...Ch. 23 - Bond ratings It is 2030 and the yields on...Ch. 23 - Prob. 4PSCh. 23 - Default option Other things equal, would you...Ch. 23 - Prob. 6PSCh. 23 - Prob. 7PSCh. 23 - Default option Digital Organics has 10 million...Ch. 23 - Prob. 9PSCh. 23 - Prob. 10PS
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- The relationship between bond prices and the interest rate bonds pay: Seleccione una: a. is Positive O b. depends on stock prices c. is unrelated d. is inverse or negativearrow_forward2 The rate of return earned on a bond if it is held until maturity is its: Group of answer choices sinking fund yield. yield-to-maturity. coupon payment. yield-to-call.arrow_forwardWhat is the relationship between the price of a fixed coupon bond and the interest rate? Why does this relationship persist?arrow_forward
- which one is correct please confirm? QUESTION 38 The term structure of interest rates is the pattern of interest rate yields for securities that differ only in ____. a. the yield to maturity b. liquidity premiums c. the length of time to maturity d. default riskarrow_forwardFor the cost of equity (stock) is it better to use the current US Treasury bill rate or a longer-termgovernment bond rate as the risk-free rate of return?arrow_forward4. Bond valuation The process of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present value of the cash flows that the security will generate in the future. There is a consistent and predictable relationship between a bond's coupon rate, its par value, a bondholder's required return, and the bond's resulting intrinsic value. Trading at a discount, trading at a premium, and trading at par refer to particular relationships between a bond's intrinsic value and its par value. This also results from the relationship between a bond's coupon rate and a bondholder's required rate of return. Remember, a bond's coupon rate partially determines the interest-based return that a bond i reflects the return that a bondholder to receive from a given investment. pay, and a bondholder's required return The mathematics of bond valuation imply a predictable relationship between the bond's coupon rate, the bondholder's required…arrow_forward
- 4. Bond valuation The process of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present value of the cash flows that the security will generate in the future. There is a consistent and predictable relationship between a bond’s coupon rate, its par value, a bondholder’s required return, and the bond’s resulting intrinsic value. Trading at a discount, trading at a premium, and trading at par refer to particular relationships between a bond’s intrinsic value and its par value. This also results from the relationship between a bond’s coupon rate and a bondholder’s required rate of return. Remember, a bond’s coupon rate partially determines the interest-based return that a bondwill pay, and a bondholder’s required return reflects the return that a bondholderis obligated to receive from a given investment. The mathematics of bond valuation imply a predictable relationship between the bond’s…arrow_forwardc. Which yield might investors expect to earn on these bonds, and why?arrow_forwardAs interest rates, and consequently investors' required rates of return, change over time, the ________ of outstanding bonds will also change. a. price b. par value c. coupon interest payment d. maturity datearrow_forward
- What is a maturity risk premium? Group of answer choices -A premium that reflects interest rate risk. -The risk of capital losses to which investors are exposed because of changing interest rates. -The difference between the interest rate on a U.S. Treasury bond and a corporate bond of equal maturity. -The rate of interest that would exist on default-free U.S. Treasury securities if no inflation were expected.arrow_forwardWhat are the differences between stocks and bonds in terms of predicted future payments? Which sort of investment is regarded to be riskier (stocks or bonds)? Given your knowledge, which investment (stocks or bonds) do you believe is often referred to as "fixed income"?arrow_forward2. How does a bond issuer decide on the appropriate coupon rates to set on its bonds? Explain the difference between the coupon rate and the required return?arrow_forward
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What happens to my bond when interest rates rise?; Author: The Financial Pipeline;https://www.youtube.com/watch?v=6uaXlI4CLOs;License: Standard Youtube License