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Exam 6: Interest Rates and Bond Valuation

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Question 51

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________ mainly explains the tendency for the yield curve to be upward sloping.

A) Expectations theory
B) Liquidity preference theory
C) Market segmentation theory
D) Investor perception theory

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Question 52

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The liquidity preference theory suggests that the shape of the yield curve is determined by the supply and demand for funds within each maturity segment.

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Question 53

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If a corporate bond is issued with a coupon rate that varies directly with the required return,the price of the bond will ________.

Yield to call represents the rate of return that investors earn if they buy a callable bond at a specific price and hold it until it is called back and they receive the call price,which would be set above the bond's par value.

A $1,000,8% bond sells for 980.$1,000 is called the ________.

Jia Hua Enterprises wants to issue sixty 20-year,$1,000 par value,zero-coupon bonds.If each bond is priced to yield 7 percent,how much will Jia Hua receive (ignoring issuance costs) when the bonds are first sold?

An example of a standard debt provision is to ________.

________ bonds are characterized by interest payments that are required only when earnings are available.

The value of a bond is the present value of the ________.

A ________ is a restrictive provision in a bond indenture,providing for the systematic retirement of the bonds prior to their maturity.

Upward-sloping yield curves result from higher future inflation expectations,lender preferences for shorter maturity loans,and greater supply of short-term as opposed to long-term loans relative to their respective demand.

The value of a bond is the present value of its interest payments plus ________.

________ allow bondholders to purchase a certain number of shares of the firm's common stock at a specified price over a certain period of time.

A bond with short maturity has less "interest rate risk" than a bond with long maturity when all other features-coupon interest rate,par value,and interest payment frequency-are the same.

An inverted yield curve is an upward-sloping yield curve that indicates generally cheaper short-term borrowing costs than long-term borrowing costs.

The expectations theory suggests that the shape of the yield curve reflects investors expectations about future interest rates.

A real rate of interest is the compensation paid by the borrower of funds to the lender measured in today's dollars.

On ________,the stated interest rate is adjusted periodically within stated limits in response to changes in specified money or capital market rates.

A bond will sell ________ when the stated rate of interest exceeds the required rate of return,________ when the stated rate of interest is less than the required return,and ________ when the stated rate of interest is equal to the required return.

A conversion feature in a bond allows bondholders to change each bond into a stated number of shares of common stock.