Bonds and Their Valuation

What is a long-term contract under which a borrower agrees to make payments of interest and principal on specific dates to the holders of the contract?

Which type of bond is issued by business firms and is exposed to default risk?

What is the stated face value of a bond, which represents the amount of money the firm borrows and promises to repay on the maturity date?

A bond has a dollar 1,000 par value and pays dollar 100 in interest each year. What is its coupon interest rate?

What provision in a bond contract gives the issuer the right to redeem the bonds under specified terms prior to the normal maturity date?

A bond's price will fall below its par value and it will be called a discount bond under what condition?

What is the price of a 15-year, dollar 1,000 par value bond with a 10 percent annual coupon if the market interest rate is 15 percent?

What is the rate of return earned on a bond if it is held to maturity?

A 14-year, 10 percent annual coupon, dollar 1,000 par value bond is priced at dollar 1,494.93. What is its yield to maturity (YTM)?

If a callable bond's price is above par, meaning current interest rates are below the bond’s coupon rate, which rate of return should an investor expect to earn?

A bond with a 10 percent annual coupon was issued at its par value of dollar 1,000. It is callable in 10 years at a price of dollar 1,100. One year after issuance, the bond's price has risen to dollar 1,494.93. What is its Yield to Call (YTC)?

What happens to the price of a fixed-rate discount bond as it approaches its maturity date, assuming the market interest rate remains constant?

When evaluating a bond that pays interest semiannually, what adjustment must be made to the annual coupon interest payment to find the cash flow for each period?

What is the price of a 15-year, dollar 1,000 par value bond with a 10 percent coupon paid semiannually, if the nominal market interest rate is 5 percent with semiannual compounding?

What is the risk of a decline in a bond’s price due to an increase in interest rates?

Which type of bond is more sensitive to changes in interest rates, meaning it has higher price risk?

What is the term for the risk that a decline in interest rates will lead to lower income from a bond portfolio when funds are reinvested?

Which type of investor is most concerned with reinvestment risk?

What type of corporate bond is backed by specific assets pledged as security for the bond?

What is the term for a formal agreement between the issuer and the bondholders that spells out in detail the rights of both parties?

Bonds rated triple-B or higher are referred to as what type of bonds?

In the event of bankruptcy, which class of debentures has a claim on assets only after senior debt has been paid in full?

What is the primary reason that corporate bond yields are higher than Treasury bond yields of the same maturity?

A bond with a dollar 1,000 par value, 10 years to maturity, and a 7 percent annual coupon is currently priced at dollar 887.00. What is its yield to maturity?

What type of bond's interest payment varies over time based on an open market rate like the 10-year Treasury bond rate?

Bonds that pay no annual interest but are sold at a discount below par are known as what?

What is the weighted average of the time it takes to receive each of the bond's cash flows?

Which bond feature allows investors to require the company to pay them back in advance, which is particularly valuable if interest rates rise?

In the event of liquidation, holders of second mortgage bonds have a claim against a property only after which group has been paid in full?

How do rating agencies like Moody's and S&P classify bonds with ratings of double-B and lower?

An investor purchases a 15-year, dollar 1,000 par value bond with a 7 percent annual coupon when the market interest rate is 10 percent. What is the approximate price of the bond?

If a bond with an 8 percent annual coupon and a dollar 1,000 par value matures in 8 years and has a market interest rate of 9 percent, what is its price?

What is the relationship between a bond's price and its yield to maturity (YTM)?

What does a bond's current yield measure?

For a premium bond, what is the relationship between its coupon rate, current yield, and yield to maturity?

Hartwell Corporation's bonds have a 20-year maturity, an 8 percent semiannual coupon, a par value of dollar 1,000, and the going nominal annual interest rate is 7 percent. What is the bond's price?

Which of the following bonds has the MOST price risk?

Which of the following bonds has the MOST reinvestment risk?

What is the primary factor that determines the differences in yield spreads between various grades of corporate bonds (e.g., AAA vs. BBB)?

If a company's bond rating is downgraded by a rating agency, what is the likely impact on its bond prices and its cost of debt?

What type of bond is generally considered a benchmark for the risk-free rate in the U.S. market?

A bond with a 10 percent coupon and 15 years to maturity is trading at par. What is its capital gains yield for the upcoming year if market interest rates remain at 10 percent?

For a bond selling at a premium, what is the expected capital gains yield over its life, assuming interest rates remain constant?

An investor wants to manage both price risk and reinvestment risk for a specific 10-year investment horizon. Which of the following strategies would be most effective?

In what market are most corporate bonds traded?

The actual invoice price an investor pays for a bond, which includes the quoted price plus any accrued interest, is also known as the:

A corporate bond with an 8 percent semiannual coupon was issued on April 21. If an investor buys the bond on July 9 of the same year (79 days after issuance), what is the approximate accrued interest owed to the seller if the coupon payment is dollar 40?

An 11 percent annual coupon bond with 23 years to maturity and a par value of dollar 1,000 has a yield to maturity of 9 percent. What is its current market price?

The process of retiring a bond issue by selling a new issue of low-yielding securities when interest rates have dropped is called what?

What is the primary trade-off that investors face when choosing between long-term and short-term bonds?