SWH Corporation issued bonds on January 1, 2004. The bonds had a coupon rate of 4.5%, with interest paid semiannually. The face value of the bonds is $1,000 and the bonds mature on January 1, 2014. What is the intrinsic value (to the nearest dollar) of an SWH Corporation bond on January 1, 2008 to an investor with a required return of 6%?

Select one:

a. $925

b. $916

c. $947

d. $888..In the case of insolvency, the claims of debt are honored prior to those of common stock and after those of preferred stock

Select one:

True

False..Aaron Corporation has two bonds outstanding. Both bonds mature in 10 years, have a face value of $1,000, and have a yield to maturity of 8%. One bond is a zero coupon bond and the other bond has a coupon rate of 8%. Which of the following statements is true?

Select one:

a. All rational investors will prefer the 8% bond because it pays more interest.

b. The zero coupon bond must have a higher price because of its greater capital gain potential.

c. Both bonds must sell for the same price if markets are in equilibrium.

d. The zero coupon bond must sell for a lower price than the bond with an 8% coupon rate...John and Karen are both considering buying a corporate bond with a coupon rate of 8%, a face value of $1,000, and a maturity date of January 1, 2025. Which of the following statements is most correct?

Select one:

a. If John decides to buy the bond, then Karen will also decide to buy the bond, if markets are efficient.

b. Because both John and Karen will receive the same cash flows if they each buy a bond, they both must assign the same value to the bond.

c. John and Karen will only buy the bonds if the bonds are rated BBB or above.

d. John may determine a different value for a bond than Karen because each investor may have a different level of risk aversion, and hence a different required return...Which of the following statements concerning preferred stock is most correct?

Select one:

a. Preferred stock is valued the same as zero coupon bonds because the cash flow patterns are similar.

b. If a corporation issues 4% preferred stock with a par value of $100, the dividend will increase by 4% per year.

c. Preferred stock dividends are calculated as a percentage of common stock dividends, although the preferred stock dividends must be paid first.

d. Preferred stock dividends are typically the same each year, allowing a preferred stock to be valued as a perpetuity..Junk bonds are also called high-yield bonds.

Select one:

True

False..