QUESTION 1

1. The value of a perpetual bond is equal to the annual interest payment divided by the ___________.

   	a.	bank interest rate
   	b.	risk-free rate
   	c.	after-tax historical cost of capital
   	d.	required rate of return

0.5 points

QUESTION 2

1. Treasury notes typically have initial maturities ranging from _____.

   	a.	1 to 5 years
   	b.	1 to 3 years
   	c.	10 to 30 years
   	d.	1 to 10 years

0.5 points

QUESTION 3

1. There is a(n) ____ relationship between the value of a bond and its required rate of return.

   	a.	distant
   	b.	turgid
   	c.	direct
   	d.	inverse

0.5 points

QUESTION 4

1. How many semiannual interest payments remain on a bond that is selling for $917.25? The coupon rate of the bond is 8 percent, interest is payable semiannually, and the current market rate of return on a similar risk bond is 10 percent.

   	a.	11
   	b.	10
   	c.	5
   	d.	7

0.5 points

QUESTION 5

1. A 15-year bond with a face value of $1,000 currently sells for $850. Which of the following statements is CORRECT?

   	a.	If the yield to maturity stays constant until the bond matures, the bonds price will remain at $850.
   	b.	The bonds coupon rate exceeds its current yield.
   	c.	The bonds current yield is equal to its coupon rate.
   	d.	The bonds yield to maturity is greater than its coupon rate.
   	e.	The bonds current yield exceeds its yield to maturity.

0.5 points

QUESTION 6

1. Dyl Inc.'s bonds currently sell for $1,060 and have a par value of $1,000. They pay a $65 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,100. What is their yield to maturity (YTM)?

   	a.	6.83%
   	b.	4.47%
   	c.	6.36%
   	d.	5.89%
   	e.	5.12%

0.5 points

QUESTION 7

1. In order to accurately assess the capital structure of a firm, it is necessary to convert its balance sheet figures from historical book values to market values. KJM Corporation's balance sheet (book values) as of today is as follows:

   Long-term debt (bonds, at par)	$23,500,000
   Preferred stock	2,000,000
   Common stock ($10 par)	10,000,000
   Retained earnings	4,000,000
   Total debt and equity	$39,500,000

   The bonds have a 9.0% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 11%, so the bonds now sell below par. What is the current market value of the firm's debt?

   	a.	$20,277,827
   	b.	$25,243,825
   	c.	$22,346,993
   	d.	$20,691,660
   	e.	$23,174,659