Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Videos
Question
Chapter 24, Problem 16PS
Summary Introduction
To determine: The manner in which a sharp variation in rates of interest, newly issued bonds usually sell at yield vary from those of outstanding bonds of the same quality.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
If bonds are issued at a discount, it means that the
a. bondholder will receive effectively less interest than the contractual rate of interest
b. market interest rate is lower than the contractual interest rate
c. financial strength of the issuer is suspect
d. market interest rate is higher than the contractual interest rate
The contract interest rate for bonds:A. must equal the effective interest rate.B. is greater than the effective interest rate when bonds are issued at a discount.C. has no relation to the cash flow associated with a particular bond.D. will fluctuate over the life of a bond.E. None of these.
When a borrower is unable to repay its loan, it is common that the lender would negotiate
with the borrower by rescheduling its payment on the loan to the future. How would the
rescheduling of sovereign bonds affect the interest rate risk of the bonds?
Chapter 24 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 24 - Bond terms Select the most appropriate term from...Ch. 24 - Sinking funds For each of the following sinking...Ch. 24 - Security and seniority a. As a senior bondholder,...Ch. 24 - Prob. 4PSCh. 24 - Prob. 5PSCh. 24 - Private placements Explain the three principal...Ch. 24 - Prob. 7PSCh. 24 - Prob. 8PSCh. 24 - Convertible bonds True or false? a. Convertible...Ch. 24 - Prob. 10PS
Ch. 24 - Bond terms Bond prices can fall either because of...Ch. 24 - Prob. 13PSCh. 24 - Prob. 14PSCh. 24 - Security and seniority a. Residential mortgages...Ch. 24 - Prob. 16PSCh. 24 - Prob. 17PSCh. 24 - Call provisions a. If interest rates rise, will...Ch. 24 - Prob. 19PSCh. 24 - Covenants Alpha Corp. is prohibited from issuing...Ch. 24 - Prob. 21PSCh. 24 - Convertible bonds The Surplus Value Company had 10...Ch. 24 - Prob. 23PSCh. 24 - Convertible bonds Iota Microsystems 10%...Ch. 24 - Prob. 25PSCh. 24 - Convertible bonds Zenco Inc. is financed by 3...Ch. 24 - Tax benefits Dorlcote Milling has outstanding a 1...Ch. 24 - Convertible bonds This question illustrates that...Ch. 24 - Prob. 29PS
Knowledge Booster
Learn more about
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
- When bonds are issued at a discount, what happens to the carrying value and interest expense over the life of the bonds? O Carrying value and interest expense decrease. Carrying value decreases and interest expense increases. O Carrying value and interest expense increase. Carrying value increases and interest expense decreases. None of the above.arrow_forwardIdentify each statement as true or false. If false, indicate how to correct the statement. (And you have forgotten to answer the right ans of false in the previous question)arrow_forwardIs the price of a long term bond or the price of a short term security more sensitive to a change in interest rates? Why?arrow_forward
- Which of the following statements is not correct? Select the correct response: The principal amount of a debt is the cash or cash equivalent amount borrowed The carrying amount of a noninterest-bearing note payable due in lump sum will decrease as time goes by When a noncash asset is acquired and the stated rate of interest is different from the current market rate of interest, the cost of the asset is the present value of the future cash payments discounted at the current market rate of interest rather than at the stated interest rate. A company that receives cash in an amount less than the face amount of a noninterest-bearing note payable should record the note at its discounted present value.arrow_forwardAll other things being equal, a given change in interest rates will have a greater impact on the price of longer maturity bonds than bonds with shorter maturity bonds. True O Falsearrow_forwardWhich of the following is TRUE concerning the distinction between interest rates and returns? Select one: a. The rate of return will be greater than the interest rate when the price of the bond falls during the holding period. b. The return can be expressed as the difference between the current yield and the rate of capital gains. c. The rate of return on a bond will not necessarily equal the interest rate on that bond. d. The return can be expressed as the sum of the discount yield and the rate of capital gainsarrow_forward
- Do bond ratings adjust immediately to changes in credit quality? Explain.arrow_forwardSome characteristics of the determinants of nominal interest rates are listed as follows. Identify the components (determinants) and the symbols associated with each characteristic: Characteristic This is the premium added to the real risk-free rate to compensate for a decrease in purchasing power over time. As interest rates rise, bond prices fall, and as interest rates fall, bond prices rise. Because interest rate changes are uncertain, this premium is added as a compensation for this uncertainty. This is the rate for a short-term riskless security when inflation is expected to be zero. It is calculated by adding the inflation premium to r*. This is the premium added as a compensation for the risk that an investor will not get paid in full. It is based on the bond's marketability and trading frequency; the less frequently the security is traded, the higher the premium added, thus increasing the interest rate. Component Liquidity risk premium Maturity risk premium Inflation premium…arrow_forwardOn the bottom of part 1, the interest expense, premium amortization, and book value of bond are incorrect. Could you check over your calculations and see what you have done wrong?arrow_forward
- The definitions of default events are fairly standard, but what really constitutes a default? a. The second missed payment O b. Default only happens when you cannot pay the interest on the outstanding debt c. The first missed payment O d. Depends on what kind of grace period is granted and the agreement with the borrowerarrow_forwardWhich of the following statement is (are) TRUE of collateralized loan obligation (CLO)? A: A CLO pools a group of loans and creates multiple tranches with different levels of risk B: The less risky tranches in a CLO have a lower pay-off (i.e. lower coupons) C: A tranch of a CLO can have a high credit rating even though the underlying loans in a CLO are risky D: All of the Above Please answer fast i give you upvote.arrow_forwardUse of the effective-interest method to amortize bond premiums and discounts results in O a smaller amount of interest income over the life of the bond issue than would result from the use of the straight-line method. a varying amount being recorded as interest income from period to period. O a variable rate of return on the book value of the investment. O a greater amount of interest income over the life of the bond issue than would result from the use of the straight-line method.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Financial Reporting, Financial Statement Analysis...
Finance
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:Cengage Learning
What happens to my bond when interest rates rise?; Author: The Financial Pipeline;https://www.youtube.com/watch?v=6uaXlI4CLOs;License: Standard Youtube License