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Finance Ch 7
Terms in this set (25)
Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal payment at maturity. What is the $1,000 called?
DLQ Inc. bonds mature in 12 years and have a coupon rate of 6 percent. If the market rate of interest increases, then the:
Market price of the bond will decrease
All else constant, a bond will sell at _____ when the coupon rate is _____ the yield to maturity.
discount; less than
Which one of the following is the price at which a dealer will buy a bond?
All else constant, a bond will sell at ________ when the yield to maturity is ________ the coupon rate.
a discount; higher than
All else constant, a coupon bond that is selling at a premium, must have
a yield to maturity that is less than the coupon rate.
Interest rate risk increases as
the coupon payment decreases.
Interest rate risk ________ as the time to maturity increases.
increases at a decreasing rate
Last year, Theo purchased a fixed-rate, 7-year bond at par that has a coupon rate of 6.5 percent. If the current market rate for this type and quality of bond is 6.8 percent, then he should expect
to realize a capital loss if he sold the bond at today's market price.
All else constant, as the market price of a bond increases the current yield ________ and the yield to maturity ________.
The yield to maturity on a bond is the rate
of return currently required by the market.
A bond with both a face value and a market value of $1,000 is called a ________ bond.
ABC bonds have a coupon rate of 9 percent, pay interest semiannually, and sell at par. Each of these bonds has a market price of ________ and interest payments of ________.
The parts of an indenture that protect the interests of the lender by limiting certain actions that a company might take during the term of the loan are called
Bonds issued by the U.S. government
are considered to be default-free.
primarily appeal to high tax-bracket investors.
Assume you purchase a bond with a quoted price of 98.6208 on June 30. The bond pays interest on February 1 and August 1. The invoice price you pay for this purchase will equal the
An upward sloping yield curve indicates
long-term rates are higher than medium-term rates.
YTM = Coupon Rate
Par Value Bond
YTM > Coupon Rate
YTM < Coupon Rate
price at which dealer will buy the bond from an investor
price at which the dealer will sell the bond to the investor
When a bond sells at par, yield to maturity ____
will equal coupon rate
current yield =
annual coupon/current price
THIS SET IS OFTEN IN FOLDERS WITH...
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