homework

Instructor: Phillip Humphrey

FIN 3343

Chapter 7 Homework

Please select the best choice from the answer choices given.

1. Which of the following is NOT a type of long-term debt?

1. mortgage bonds

2. debentures

3. debenture bonds

4. commercial paper

2. What is the current price of a bond issued by Dundee International which pays a semiannual coupon rate of 6 8/9%? The bond matures in 5 years and the required return on investments of similar risk is 6.5%.

3. Maxine Corp has a 5 1/8% coupon bond outstanding in 2004. The bond matures on April 1 in the maturity year. Suppose an investor bought this bond on April 1, 1999 and assume that interest is paid annually on April 1. Calculate the yield-to-maturity assuming the investor buys the bond at 105, as quoted in the financial press.

4. A “junk bond” is a term used to describe a bond that

1. 1. is in default

   2. is rated Ba or lower

   3. is currently paying interest

   4. has been downgraded by Moody’s

5. ____________are not secured by specific assets.

6. Determine the expected inflation rate if the nominal rate of return is 10% and the real rate of return is 7%.

7. You just purchased a bond for 99.35. It matures in 12 years and pays a coupon of 8 3/7% semiannually. What return can you expect to earn if you hold it until maturity?

8. The ____ the investor's required rate of return on a bond, the ____ will be the value of the bond to the investor.

9. A sinking fund allows the issuer to

10. How many years are left until maturity of a bond that is selling for $916.95? 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.

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