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# This document is a copyright document. It is solely for the use of course roster students in this particular course. It is NOT for distribution...

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This document is a copyright document. It is solely for the use of course roster students in this particular course. It is NOT for distribution outside the course environment in any manner, for any reason, to any individual or group; past, present, or future. Redistribution or further posting in any form is considered a violation of the UAS Code of Conduct. BA 325 – F13 – Quiz – Chapter 7 Page 1 of 4 1. The yield to maturity on a bond is the rate of return that equates the present value of the bond's future cash flows with the bond's ________. a. face value b. market value c. liquidation value d. book value 2. Shafer Corporation issued callable bonds. The bonds are most likely to be called if ________. a. interest rates decrease b. interest rates increase c. Shafer Corporation needs additional financing d. Shafer Corporation’s stock price increases dramatically 3. In 1998 Fischer Corp issued bonds with an 8 percent coupon rate and a \$1,000 face value. The bonds mature on March 1, 2023. If an investor purchased one of these bonds on March 1, 2008, determine the yield to maturity if the investor paid \$1,050 for the bond. a. 8.5% b. the yield to maturity is \$950 (\$1,000 interest less \$50 capital loss) c. the yield to maturity must be greater than 8% because the price paid for the bond exceeds the face value d. 7.44% 4. A corporate bond has a coupon rate of 9%, a face value of \$1,000, and matures in 15 years. Which of the following statements is most correct? a. An investor with a required return of 10% will value the bond at more than \$1,000. b. An investor who buys the bond for \$900 and holds the bond until maturity will have a capital loss. c. An investor who buys the bond for \$900 will have a yield to maturity on the bond greater than 9%. d. If the bond’s market price is \$900, then the annual interest payments on the bond will be \$81. 5. A corporate bond has a coupon rate of 9%, a yield to maturity of 11.1%, a face value of \$1,000, and a market price of \$850. Therefore, the annual interest payment is: a. \$90 b. \$109 c. \$76.50 d. \$111
This document is a copyright document. It is solely for the use of course roster students in this particular course. It is NOT for distribution outside the course environment in any manner, for any reason, to any individual or group; past, present, or future. Redistribution or further posting in any form is considered a violation of the UAS Code of Conduct. BA 325 – F13 – Quiz – Chapter 7 Page 2 of 4 6. A bond issued by Cornwallis, Inc. 15 years ago has a coupon rate of 7% and a face value of \$1,000. The bond will mature in 10 years. What is the value (to the nearest dollar) to an investor with a required return of 10%? a. \$816 b. \$886 c. \$772 d. \$728 7. While checking the Wall Street Journal bond listings you notice that the price of an AT&T bond is the same as the price of a K-Mart bond. Based on this information you know that: a. The bond with the lower coupon rate will have the lower current yield. b. Both bonds have the same yield to maturity. c. Both bonds will have the same bond rating. d. The bond with the longest time to maturity will have the highest yield to maturity. 8. A \$1,000 par value 12-year bond with a 9 percent coupon rate recently sold for \$980. The yield to maturity is ________. a. 9 percent b. greater than 9 percent c. 8.8% d. less than 8% 9. All of the following will cause the value of a bond to increase, other things held the same, except: a. investors' required rate of return increases b. the company's debt rating increases from BBB to AAA c. interest rates decrease d. the bond is convertible into the company's common stock 10. What is the yield to maturity of a corporate bond with 10 years to maturity, a coupon rate of 6% per year, a \$1,000 par value, and a current market price of \$1,147? Assume semi-annual coupon payments. a. 4.2% b. 4.7% c. 6.0% d. 5.3%
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This document is a copyright document. It is solely for the use of course roster
students in this particular course. It is NOT for distribution outside the course
environment in any manner, for any...

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