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Economics
Finance
Chapter 4: Bond Valuation
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Terms in this set (62)
The fixed amount paid on the bond every year is known as the ______________.
Coupon Rate
The representative coupon rate for a strong company can be around 8%
T
The total return due to the interest received on a bond is known as the ___________.
Current Yield
The current yield of a bond changes with the ______________ of the bond.
Price
As a premium bond reaches maturity, the current yield, along with the price, of that bond will _____________.
Decrease
As a discount bond reaches maturity, the current yield, along with the price, of that bond will _____________.
Increase
The total return due to the change in the price of a bond is known as ________________ for the current year.
Capital Gain Yield
A the price of a bond decreases, the capital gain yield will ____________.
Decrease
The rate of return earned on the bond purchased and held until maturity is known as _______________.
Yield to Maturity (YTM)
The _________________ is the rate of return at which the present value of all the payment streams, including interest and principal, is equal to the current price of the bond.
Yield to Maturity (YTM)
As the yield to maturity is the total of the current yield and the capital gain yield, it also changes with the _______________ of the bond.
Price
If the current interest rate on a bond is less than the coupon rate of the bond, then it is possible that a callable bond will be called and the return on this called bond is known as _______________.
Yield to Call (YTC)
The risk of a decrease in a bond's price as interest rates rise is known as ________________.
Interest Rate Risk
If a current bond matures and the income from it is reinvested in the new bond, and if interest rates decreases thereafter, then this will reduce the income of the new bond. This risk is known as _______________.
Basically, if you don't get as good of a deal when you reinvest, then it is called _______________.
Reinvestment Rate Risk
The interest rate risk increases with the increase in the maturity of the bond.
Longer maturity = higher interest rate risk.
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Verified questions
ACCOUNTING
a. What does an accountant do? b. Name “The Big Four” accounting firms from which you could likely obtain information about current career opportunities.
ACCOUNTING
$$ \begin{matrix} \text{Trans. } & \text{Assets} & \text{}{\text{ = Liabilities }} & \text{}{\text { + Owner's Equity }}\\ \text{No.} & \text{}{\begin{array}{c}{\text { Accts. Rec. }-} \\ {\text { Cash }+\text { Bethany Center }+\text { Supplies }}\end{array}} & \text{}{\begin{array}{cc}{\text { Prepaid }} & {\text { Accts. Pay. }-} \\ {\text { Insurance }} & {=\text { McGrew Supplies }}\end{array}} & \text{}{\begin{array}{r}{\text {+Bryan Arnett, }} \\ {\text { Capital }}\end{array}}\\ \text{1}\\ \end{matrix} $$ Write the answers to the following problem in the Working Papers. Work this problem independently. Place a plus sign (+) in the appropriate column if the account is increased. place a minus sign (-) in the appropriate column if the account is decreased. Transactions: 1. Sold services on account to Bethany center 2. Received cash from sales. 3. Received cash on account from Bethany center. 4. Owner withdrew equity in the form of cash. 5. Paid cash for rent.
ACCOUNTING
The FASB Accounting Standards Codification represents the single source of authoritative U.S. generally accepted accounting principles. Required: 1. Obtain the relevant authoritative literature on the impairment or disposal of long-lived assets using the FASB Accounting Standards Codification at the FASB website (asc.fasb.org). Indicate the Codification topic number that provides guidance on accounting for the impairment of long-lived assets. 2. What is the specific citation that discusses the disclosures required in the notes to the financial statements for the impairment of long-lived assets classified as held and used? 3. Describe the disclosure requirements.
ACCOUNTING
Maximum Metal Recycling and Salvage receives the opportunity to salvage scrap metal and other materials from an old industrial site. The current owners of the site will sign over the site to Maximum at no cost. Maximum intends to extract scrap metal at the site for 24 months and than will clean up the site, return the land to useable condition, and sell it to a developer. Projected costs associated with the project follow: Ignore time value of money. 1. Assuming that Maximum expects to salvage 70,000 tons of metal from the site, what is the total project life cycle cost? 2. Suppose Maximum can sell the metal for $110 per ton and wants to earn a profit (before taxes) of$30 per ton. At what price must Maximum sell the land at the end of the project to achieve its target profit per ton? 3. Now suppose Maximum can only sell the metal for $100 per ton and the land at$110,000 less than what you calculated in requirement 2. If Maximum wanted to maintain the same markup percentage on total project life-cycle cost as in requirement 2, by how much would the company have to reduce its total project life-cycle cost? $$ \begin{matrix} \text{ } & \text{ } & \text{Fixed} & \text{Variable}\\ \text{Months 1-24} & \text{Metal extraction and processing} & \text{\$ 2.000 per month} & \text{\$ 80 per ton}\\ \text{Months 1-27} & \text{Rent on temporary buildings} & \text{\$ 1.000 per month} & \text{---}\\ \text{ } & \text{ Administration} & \text{\$ 6.000 per month} & \text{---}\\ \text{Months 25-27} & \text{Clean-up} & \text{\$ 20.000 per month} & \text{---}\\ \text{ } & \text{Land restoration} & \text{\$ 23.000 total} & \text{---}\\ \text{ } & \text{Cost of selling land} & \text{\$ 80.000 total} & \text{---}\\ \end{matrix} $$
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