For a bond that is currently selling for par value (e, $1000), which one of the following relationships is correct (note: assume that all factors, other than the one mentioned, remain constant)? O1 if the coupon rate increases, the bond price will remain the same. 2) if the coupon rate increases, the bond price will decrease. O 31 ir the yield to maturity decreases, the bond price will decrease. O4) if the term to maturity increases, the bond price will remain the same. 5) If the yield to maturity increases, the bond price will remain the same.

For a bond that is currently selling for par value (e, $1000), which one of the following relationships is correct (note: assume that all factors, other than the one mentioned, remain constant)? O1 if the coupon rate increases, the bond price will remain the same. 2) if the coupon rate increases, the bond price will decrease. O 31 ir the yield to maturity decreases, the bond price will decrease. O4) if the term to maturity increases, the bond price will remain the same. 5) If the yield to maturity increases, the bond price will remain the same.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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4. The following statements describe the general characteristics of price of the coupon bond. Which one is false? a. When the market interest rate falls, the bond price rises. b. The value of bond can be computed as the sum of PDV (present discount value) of all the remaining future payments associated with it. c. When the market interest rate is the same as the coupon rate, the value of bond equals the face value. d. The face value and the coupon rate are fixed for the life of the bond. None of the above are false. е.
Which of the following statements is/are most CORRECT? O 11 A yield curve depicts the relationship between bond's 'time to maturity and its yield to maturity. 2) A premium bond's price will decline over time if the required return remains unchanged. 3) A discount bond's price will decline over time if the required return remains unchanged. 4) Both a and b are correct.
2. Bond prices and yields (S3.1) The following statements are true. Explain why. a. If a bond's coupon rate is higher than its yield to maturity, then the bond will sell for more than face value. b. If a bond's coupon rate is lower than its yield to maturity, then the bond's price will increase over its remaining maturity.
1. Which of the following is correct? Group of answer choices 1. The lower the price you pay for a bond, the greater is your return. 2. A bond is overpriced when its value is greater than its price. 3. A fairly priced bond has a price equal to its face. 4. The value of a bond can be determined by the present value of all coupon payments and the present value of principal payment at maturity date.
1. When the market interest rate rises, what happens to bond prices? Group of answer choices They rise They stay the same Cannot be determined They fall 2. A bond discount occurs when: Group of answer choices The price of a bond is above its face value. The price of a bond is above its maturity value. The price of a bond is below its face value. The price of the bond is equal to a bond's face value. 3. When a bond sells for a premium, Group of answer choices The price is above the face value The price is equal to the face value. The price is below the face value The price is below the maturity value. 4. A bond has a face value of $100,000 and a price of $97,000. The journal entry at the date of issuance would include: Group of answer choices A credit to Bond Discount of 3,000 A debit to Bond Discount of 97,000 A debit to Bond Discount of 3,000 A credit to Bond Premium of 3,000 5. A bond has a face…
Which of the following is correct? O If you pay a price above its face value to buy a bond, your return will be higher than its coupon rate. O When market rate is greater than coupon rate, the bond has a price below its face value. O When determining the value of a bond that payments semi-annual payments, one need to use semi-annual coupon rate to determine the coupon payments and semi-annual market rate as discount rate.
5. Бопа уyielas Coupon payments are fixed, but the percentage return that investors receive varies based on market conditions. This percentage return is referred to as the bond's yield. Yield to maturity (YTM) is the rate of return expected from a bond held until its maturity date. However, the YTM equals the expected rate of return under certain assumptions. Which of the following is one of those assumptions? The bond will not be called. The bond has an early redemption feature. Consider the case of Blanche Inc.: Blanche Inc. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price is $1,130.35. However, Blanche Inc. may call the bonds in eight years at a call price of $1,060. What are the YTM and the yield to call (YTC) on Blanche Inc.'s bonds? YTM YTC Value If interest rates are expected to remain constant, what is the best estimate of the remaining life left for Blanche Inc.'s bonds? 13…
Which of the following statements regarding bonds and their terms is FALSE? *** OA. When we calculate a bond's yield to maturity by solving the formula, Coupon Coupon Coupon + Face Price of an n-period bond = (1 + )" + + + MA (1+)¹ (1+)² the yield we compute will be a rate per coupon interval. OB. The internal rate of return (IRR) of an investment in a zero-coupon bond is the rate of return that investors will earn on their money if they buy a default - free bond at its current price and hold it to maturity. OC. The yield to maturity of a bond is the discount rate that sets the future value (FV) of the promised bond payments equal to the current market price of the bond. OD. Financial professionals also use the term spot interest rates to refer to the default - free zero- coupon yields.
3. Bond prices and yields (S3.1) Construct some simple examples to illustrate your answers to the following: a. If interest rates rise, do bond prices rise or fall? b. If the bond yield to maturity is greater than the coupon, is the price of the bond greater or less than 100? c. If the price of a bond exceeds 100, is the yield to maturity greater or less than the coupon?
(Using algabreic formula to answer) (a) You hold a consol that pays a coupon C in perpetuity. The current interest rate is i, and the average expectation in the market is that this will remain unchanged. What will be the price of the consol today?(b) In the next period however, the interest rate changes unexpectedly to i'. What is the new price of the bond? If the bond is sold at the beginning of that next period, what is the yield from the consol? Does the yield increase or decrease if i' > i? (c) Suppose alternatively that the market expects that the interest rate will changeto i' after the initial period. What is the initial value of the consol, and what is the yield from selling it after one period?
Which of the following statements are most likely to be true? 1. The only factor that has an impact on a bond's price is its yield to maturity. II. Bond prices and market interest rates move in the opposite direction. III. As time passes and a bond approaches its maturity date, its (ex-coupon) price will converge to its face value. Group of answer choices I and Il only. I and III only. Il and III only. I, Il and II. 3) A company has a bank loan outstanding that requires it to make annual payments of $1,000,000 at the end of each of the next three years. The bank has offered to the company to skip the next two payments and instead make a single payment at the end of the loan's term in three years' time. If the interest rate on the loan is 6% p.a., compounded quarterly, the final payment that will make the company indifferent between the two payment options is closest to: Group of answer choices $2,666,283. $2,673,012. $3,183,600. $3,187,856. 2)
If a bond sells for its par value, the coupon interest rate and yield to maturity are equal. True False *