Bond and Coupon Rate
The corporate bond market is “thin” compared to the market for money market securities or corporate stocks. a) true
Prices in the corporate bond market tend to be less volatile than prices of securities sold in markets with greater trading volumes.
a) False
All other things being equal, a given change in the interest rates will have a greater impact on the price of a low-coupon bond than a higher-coupon bond with the same maturity.
a) True
If investors believe inflation will be increasing in the future, the prevailing yield will be downward sloping.
a) false
The real rate of interest varies with the business cycle, with the highest rates seen at the end of a period of business expansion and the lowest at the bottom of a recession.
a) True
Bond price: Briar Corp is issuing a 10-year bond with a coupon rate of 7 percent. The interest rate for similar bonds is currently 9 percent. Assuming annual payments, what is the present value of the bond? (Round to the nearest dollar.)
Years to maturity = n = 10
Coupon rate = C = 7%
Annual coupon = $1,000 x 0.07 = $70
Current market rate = i = 9%
Present value of bond = PB
Bond price: Jane Thorpe has been offered a seven-year bond issued by Barone, Inc., at a price of 943.22. The bond has a coupon rate of 9 percent and pays the coupon semiannually. Similar bonds in the market will yield 10 percent today. Should she buy the bonds at the offered price? (Round to the nearest dollar.)
Top of Form
Years to maturity = n = 7
Coupon rate = C = 9%
Frequency of payment = m = 2 coupon = $1,000 x (0.09/2) = $45.00
Current market rate = i = 10%
Present value of bond = PB
Bottom of Form
Bond price: Jeremy Kohn is planning to invest in a 10-year bond that pays a 12 percent coupon. The current market rate for similar bonds is 9 percent. Assume semiannual coupon payments. What is the maximum price that should be paid for this bond? (Round to the nearest dollar.)
Years to maturity = n = 10
Coupon rate = C = 12%
Frequency of payment = m
Prices in the corporate bond market tend to be less volatile than prices of securities sold in markets with greater trading volumes.
a) False
All other things being equal, a given change in the interest rates will have a greater impact on the price of a low-coupon bond than a higher-coupon bond with the same maturity.
a) True
If investors believe inflation will be increasing in the future, the prevailing yield will be downward sloping.
a) false
The real rate of interest varies with the business cycle, with the highest rates seen at the end of a period of business expansion and the lowest at the bottom of a recession.
a) True
Bond price: Briar Corp is issuing a 10-year bond with a coupon rate of 7 percent. The interest rate for similar bonds is currently 9 percent. Assuming annual payments, what is the present value of the bond? (Round to the nearest dollar.)
Years to maturity = n = 10
Coupon rate = C = 7%
Annual coupon = $1,000 x 0.07 = $70
Current market rate = i = 9%
Present value of bond = PB
Bond price: Jane Thorpe has been offered a seven-year bond issued by Barone, Inc., at a price of 943.22. The bond has a coupon rate of 9 percent and pays the coupon semiannually. Similar bonds in the market will yield 10 percent today. Should she buy the bonds at the offered price? (Round to the nearest dollar.)
Top of Form
Years to maturity = n = 7
Coupon rate = C = 9%
Frequency of payment = m = 2 coupon = $1,000 x (0.09/2) = $45.00
Current market rate = i = 10%
Present value of bond = PB
Bottom of Form
Bond price: Jeremy Kohn is planning to invest in a 10-year bond that pays a 12 percent coupon. The current market rate for similar bonds is 9 percent. Assume semiannual coupon payments. What is the maximum price that should be paid for this bond? (Round to the nearest dollar.)
Years to maturity = n = 10
Coupon rate = C = 12%
Frequency of payment = m