Eight years ago a Fortune 100 company issued a 30-year bond with an 8% coupon paid semi-annually and the current price is 94% of its face value. If interest rates move upward the price of this bond can be expected to ___________.

stay the same

increase

decrease

Not enough information to determine

Current Yield on a Bond. Assume Blue Chip Corporation's bonds currently sell for $1,100. They have a 6-year maturity, an annual coupon of $80, and a par value of $1000. What is the current yield or the yield in the next one year?

7.14%

7.27%

7.88%

8.27%

8.68%

Yield to Maturity. Assume that Tennis Galaxy bonds currently sell for $1,300, have a par value of $1000, a call value of $1,200, an annual coupon payment of $100. The bonds have a 15-year maturity, but can be called in 10 years at $1,200. What is the yield to maturity (YTM)?

6.63%

6.75%

7.14%

7.74%

8.12%

Yield to Call. Assume that Tennis Galaxy bonds currently sell for $1,300, have a par value of $1000, a call value of $1,200, an annual coupon payment of $100. The bonds have a 15-year maturity, but can be called in 10 years at $1,200. What is the yield to call (YTC)?

6.63%

6.75%

7.14%

7.74%

8.12%

YTM. In this case, assume Golf Galore's non-callable bonds currently sell for $1,500. They have a 12-year maturity, an annual coupon of $75, and a par value of $1,000 (reminder: the par value is $1000 unless stated otherwise). What is their annual yield to maturity or YTM?

2.59%

5.02%

5.96%

6.25%

7.17%

YTM on a Bond. Golf Galore's non-callable bonds currently sell for $1,220. They have a 12-year maturity, an annual coupon of $75, and a par value of $1,000 (reminder: the par value is $1000 unless stated otherwise). What is their annual yield to maturity or YTM?

2.51%

5.02%

5.96%

6.25%

7.17%

If the company encounters financial difficulty causing its bond rating to decline from AAA to AA, the next coupon payment on a "typical" bond would be expected to:

decline

increase

not change

not enough information to determine

Investors buy bonds for the following reason(s):

receive income from the coupon payments

to take advantage of any opportunities for price appreciation

to take advantage of any changes in interest rates

all of the answer choices are correct

Suppose you purchased bonds issued by ABC Corporation at 110% of par (remember: par is $1000 unless told otherwise). The firm promises to pay an 8% annual coupon on a semi-annual basis and to pay the par value at maturity, which is 10 years from today. Each coupon payment of ____ is commonly called the annuity portion of this bond and the maturity value of ______ is commonly called the lump sum component.

$80; $1000

$80; $1100

$40; $1000

$40; $1100

Suppose that XYZ Corporation has previously issued corporate bonds, preferred stock and common stock. Now, the firm has just received a change in its bond rating to AA from AAA. This means that a new bond issue by the firm will:

pay a higher coupon rate than firms with a AAA rating for the same type of bond issue

pay a lower coupon rate than firms with a AAA rating for the same type of bond issue.

the coupon rate will be the same as other firms with ratings considered "investment grade."

the firm will not be able to issue any new bonds until its rating returns to AAA.

none of the above as bond ratings are no longer relevant.

The dynamics of the bond market tend to make bond prices and current interest rates move in _______________ direction.

the same

the opposite

an unpredictable

all of the answer choices are correct

Most bond trading is done:

in person

by postage mail

electronicallly

among a small, select group of investors

Double Points. Wicked Good Slippers Corporation has bonds outstanding that currently sell for $1175. They mature in 10 years, have a par value of $1,100, monthly coupon payments, and an annual coupon rate of 9%. Find the annual yield to maturity.

0.45%

0.67%

8.01%

8.25%

9.05%

Yield to Call. Mouse House Ltd.'s bonds currently sell for $1200. They mature in 12 years, can be called in 5 years, pay semi-annual coupons of $50, have a par value of $1000, and a call value of $1,050. Calculate the yield to call.

3.08%

3.46%

5.02%

6.16%

6.91%

Grand Scale Productions Corporation currently sells a 10-year bond that has a par value of $1,000, market price of $1,100 but suppose you buy the bond for $1,150. The coupon rate is 8% and payments are made quarterly. The bond may be called after five years have elapsed for $1050 and, if called, it would occur at the beginning of the year. Assume interest rates for years 6-10 are 9%, 10%, 8%, 7%, and 9%, respectively. Calculate your annual yield to call.

1.53%

5.95%

6.11%

6.43%