Suppose a bond sells at a premium to par value. This implies the bond is a good investment the bond has a built-in capital gain the bond has as built-in capital loss the bond is a bad investment
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- When a bond sells at a discount, the carrying value ________ after each amortization entry. A. increases B. decreases C. stays the same D. cannot be determinedWhich of the following statement on bond valuation is correct? A. If bond price is greater than bond face value, the bond is mispriced and no investor will be interested in the bond. B. If YTM is greater than coupon rate, the bond price is greater than the bond face value. C. If the coupon rate is greater than the YTM, the bond price is less than the bond face value. D. If the coupon rate is less than the YTM, the bond price is less than the bond face value.Select all the correct statements. a. The no-arbitrage price of a bond is equal to its present value. b. If there is an arbitrage opportunity, it means one can make a risk-free profit. c. Small arbitrage opportunities may occasionally exist in real markets due to lack of information. d. The law of one price is based on the no-arbitrage assumption. e. Arbitrary investments and arbitrage generating investments are basically the same
- An investor invests in a fixed-rate bond because: His calculated value for the bond is greater than the selling price His calculated yield is greater than the yield posted in the market He is happy with the yield of the bond when considering its risk None of the aboveWhich of the follwing statement is correct. As the credit risk of a bond increases: The YTM falls and price of the bond falls The YTM increases and price of the bond falls The YTM falls and price of the bond rises The YTM increases and price of the bond rises unansweredA bond that pays interest forever and has no maturity is a perpetual bond. In what respectis a perpetual bond similar to a no-growth common stock? Are there preferred stocks thatare evaluated similarly to perpetual bonds and other preferred stocks that are more likebonds with finite lives? Explain.
- Can I use the yield to maturity (YTM) on a bond issued by the company as the cost of debt? A Yes, you can use the YTM B No, you cannot use the YTM C Only if the bond is liquid and has not special feature embedded in it D There is not enough information to answer this problemAn investor believes that a bond may temporarily increase in credit risk. Which of the following would be the most liquid method of exploiting this?a. The purchase of a credit default swap.b. The sale of a credit default swap.c. The short sale of the bond.What causes a gain or loss on the sale of a bond investment? Group of answer choices when the selling company negotiates a better price when the selling price of the bond differs from the book value (cost) of the bond when the selling company has unamortized discounts when the selling company has unamortized premiums
- 1)Which of the following is NOT true regarding bonds? Group of answer choices A)If a bond is selling at a discount, then the current yield is greater than the yield-to-maturity. B)An increase in market interest rates leads to a decrease in bond prices. C)If the coupon rate on a bond is lower than the yield-to-maturity, the bond sells at a discount. D)If the coupon rate on a bond equals the yield-to-maturity, then the bond sells at par. 2)When calculating free cash flows, which of the following statements is NOT true regarding the depreciation? Group of answer choices A)As an accrual, depreciation does not factor into free cash flow calculations. B)Depreciation is an accrual, not a cash flow. C)Depreciation create a tax shield. D)Depreciation is first removed and the subsequently added back in when calculating free cash flows.You just purchased a convertible bond. Today, the strictly debt value is inferior relative to the conversion value. If the required return on the bond increases: a) The minimum price of the bond will decrease. b) The minimum price of the bond will increase. c) The minimum price of the bond remains the same. d) The strictly debt value of the bond will be superior to the conversion value. e) It is impossible to make that determination with this information.Which of the follwing statement is correct. As the credit risk of a bond increases: A. The YTM falls and price of the bond falls B. The YTM increases and price of the bond falls C. The YTM falls and price of the bond rises D. The YTM increases and price of the bond rises