Exercise for chapter 7_short

Exercise for chapter 7_short - 1. 2. If a bond sells for...

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1. If a bond sells for its par value, the coupon interest rate and yield to maturity are equal. Answer: True; Difficulty: 1; Keywords: Par Value, Coupon Rate, Yield to Maturity 2. Subordinated debentures are more risky than unsubordinated debentures because the claims of subordinated debenture holders are less likely to be honored in the event of liquidation. Answer: True; Difficulty: 1; Keywords: Subordinated Debentures, Unsubordinated Debentures, Liquidation 3. An example of a Eurobond is a bond issued in Asia by a U.S. Corporation with interest and principal payments made in U.S. dollars. Answer: True; Difficulty: 1; Keywords: Eurobond 4. There are no cash flow effects for the issuer of a zero coupon bond except for the initial cash inflow when the bonds are issued and the cash payment when the bonds mature. Answer: False; Difficulty: 2; Keywords: Zero Coupon Bond, Amortization of Discount 5. Junk bonds are also called high-yield bonds. Answer: True; Difficulty: 1; Keywords: Junk Bonds, High-yield Bonds 6. The expected yield on junk bonds is lower than the yield on AAA-rated bonds because of the higher default risk associated with junk bonds. Answer: False; Difficulty: 1; Keywords: Junk Bonds, Default Risk, Bond Yields 8. A bond with a par value of $1,000 is listed in the Wall Street Journal at a price of 100.50. This bond is selling for $1,005. Answer: True; Difficulty: 1; Keywords: Bond Quotation, Par Value 9. A bond with a coupon rate of 8% will also have a yield to maturity of 8%. Answer: False; Difficulty: 1; Keywords: Yield to Maturity, Coupon Rate 14. If a bond is selling below its face value, then its yield to maturity must be less than the bond’s coupon rate. Answer: False; Difficulty: 1; Keywords: Yield to Maturity, Face Value, Coupon Rate 15. If two bonds have the same yield to maturity, they also have the same current yield. Answer: False; Difficulty: 1; Keywords: Yield to Maturity, Current Yield 16. Bonds generally have a maturity date while preferred stocks do not. Answer: True; Difficulty: 1; Keywords: Bonds, Maturity Date, Preferred Stock 17. Bond prices are inversely related to market interest rates. Answer: True; Difficulty: 1; Keywords: Bond Prices, Interest Rates 18. The restrictive provisions contained in the bond indenture protect the common stockholders. Answer: False; Difficulty: 1; Keywords: Restrictive Provisions, Bond Indenture 27. As market rates of interest rise, investors move their funds into bonds, thus increasing their price and lowering their yield. Answer: False; Difficulty: 1; Bond Value, Interest Rates 28. A mortgage bond is secured by a lien on real property. Answer: True; Difficulty: 1; Keywords: Mortgage Bond
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29. If a bond’s rating declines, then so does its price, everything else equal. Answer:
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This note was uploaded on 11/09/2010 for the course ACCT 301 taught by Professor Lynn during the Spring '10 term at University of Baltimore.

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Exercise for chapter 7_short - 1. 2. If a bond sells for...

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