FIN401 Exam 2 (Chapter 7)

The stated interest payment, in dollars, made on a bond each period is called the bond's:

The principal amount of a bond that is repaid at the end of the loan term is called the bond's:

All else constant, as the market price of a bond increases the current yield _____ and the yield to maturity _____

A bond with a 7 percent coupon that pays interest semi-annually and is priced at par will have a market price of _____ and interest payments in the amount of _____ each.

The newly issued bonds of the Wynslow Corp. offer a 6 percent coupon with semiannual interest payments. The bonds are currently priced at par value. The effective annual rate provided by these bonds must be:

All else constant, a bond will sell at _____ when the yield to maturity is _____ the coupon rate.

The annual coupon payment of a bond divided by its market price is called the:

You own a bond that has a 7 percent coupon and matures in 12 years. You purchased this bond at par value when it was originally issued. If the current market rate for this type and quality of bond is 7.5 percent, then you would expect:

American Fortunes is preparing a bond offering with an 8 percent coupon rate. The bonds will be repaid in 10 years. The company plans to issue the bonds at par value and pay interest semiannually. Given this, which of the following statements are correct? I. The initial selling price of each bond will be $1,000. II. After the bonds have been outstanding for 1 year, you should use 9 as the number of compounding periods when calculating the market value of the bond. III. Each interest payment per bond will be $40. IV. The yield to maturity when the bonds are first issued is 8 percent.

The rate of return required by investors in the market for owning a bond is called the:

The principle amount of a bond that is repaid at the maturity of the bond

annual interest payment as a percentage of face value

the interest payments paid to the bondholder

As interest rates increase

As interest rates increase

par value=bond price

par value is less than the bond price, selling at a discount

par value is greater than the bond price, selling at a premium

Long-term bonds with low coupon rates

Short-term bonds with high coupon rates

Suppose that the bond with a 6.5% coupon rate and semiannual coupons, has a face value of $1000, 3 years to maturity and is selling for $1073.44 (asked Price). Without calculation, will the yield by more or less than 6.5% Calculate the YTM? What is the effective annual yield on this bond?

Bonds of similar risk(and Maturity) will be priced to yield about the same return, regardless of the coupon rate. If you know the price of one bond, you can estimate its YTM and use that to find the price of the second bond.

Pembroke Co. wants to issue new 20-year bonds for some much-needed expansion projects. The company currently has 10% coupon bonds on the market that sells for $1,063, makes semiannual payments and matures in 20 years. What coupon rate should the company set on its new bonds if it wants them to sell at par?