Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Question
Chapter 24, Problem 19PS
Summary Introduction
To discuss: The relationship between the value of a straight bond and that of a puttable bond with a diagram.
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a. Explain the impact on the offering yield of adding a call feature to a proposed bond issue.b. Explain the impact on the bond’s expected life of adding a call feature to a proposed bond issue.c. Describe one advantage and one disadvantage of including callable bonds in a portfolio.
Which of the following is TRUE about a bond's face (par) value?
Select one:
a.
the face value of a bond is the same as the bond's price
b.
the par value of a bond is the interest payment
c.
the face value of a bond changes when yields change
d.
the value of a bond will always be equal to par at maturity.
The bid price for a bond quote is:
a. Fixed over the life of a bond
b. The price at which the bond dealer is willing to purchase the bond
c. The price at which the bond dealer is willing to sell the bond
d. Determined solely by the time left to maturity
Chapter 24 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 24 - Bond terms Select the most appropriate term from...Ch. 24 - Sinking funds For each of the following sinking...Ch. 24 - Security and seniority a. As a senior bondholder,...Ch. 24 - Prob. 4PSCh. 24 - Prob. 5PSCh. 24 - Private placements Explain the three principal...Ch. 24 - Prob. 7PSCh. 24 - Prob. 8PSCh. 24 - Convertible bonds True or false? a. Convertible...Ch. 24 - Prob. 10PS
Ch. 24 - Bond terms Bond prices can fall either because of...Ch. 24 - Prob. 13PSCh. 24 - Prob. 14PSCh. 24 - Security and seniority a. Residential mortgages...Ch. 24 - Prob. 16PSCh. 24 - Prob. 17PSCh. 24 - Call provisions a. If interest rates rise, will...Ch. 24 - Prob. 19PSCh. 24 - Covenants Alpha Corp. is prohibited from issuing...Ch. 24 - Prob. 21PSCh. 24 - Convertible bonds The Surplus Value Company had 10...Ch. 24 - Prob. 23PSCh. 24 - Convertible bonds Iota Microsystems 10%...Ch. 24 - Prob. 25PSCh. 24 - Convertible bonds Zenco Inc. is financed by 3...Ch. 24 - Tax benefits Dorlcote Milling has outstanding a 1...Ch. 24 - Convertible bonds This question illustrates that...Ch. 24 - Prob. 29PS
Knowledge Booster
Similar questions
- Describe and differentiate between a bonds (a) current yield and (b) yield to maturity. Why are these yield measures important to the bond investor? Find the yield to maturity of a 20-year, 9 percent, 1,000 par value bond trading at a price of 850. Whats the current yield on this bond?arrow_forwardThe coupon rate and the face value of the bond is contained in the Group of answer choices bond indenture. bond's positive covenants. the bond investor kit. bond offering statement.arrow_forwardThe bid price for a bond quote is: Answer a. Fixed over the life of a bond b. The price at which the bond dealer is willing to purchase the bond c. The price at which the bond dealer is willing to sell the bond d. Determined solely by the time left to maturityarrow_forward
- Bond Relationships. Select one or more of the following phrases to complete the following sentences. increase, decrease, par, discount, premium, less than, more than, greater, less, fall, rise a. As interest rate increases the value of a bond will ______________. b. The discount bond sells for ____________ as maturity approaches. c. When interest rates fall, the market required rates of return ________, and the bond prices will ________. d. If interest rates increase after a bond issue, the yield-to-maturity will ______,arrow_forwardPlease see attached. Definition: Yield to maturity (YTM) is the return the bond holder receives on the bond if held to maturity.arrow_forwardBond Relationships. Select one or more of the following phrases to complete the following sentences. increase, decrease, par, discount, premium, less than, more than, greater, less, fall, rise.a. If the current interest rate exceeds the bond’s coupon rate, the bond will sell at a ___________. b. The value of a bond to increase if there is a/an ________ in interest rates. c. A bond’s coupon rate is more than the interest rate, therefore the bond is selling at a _____________. d. As interest rate increases the value of a bond will ______________. e. If the bondholder’s required rate of return equals the coupon interest rate, the bond will sell at _________. f. A premium bond sells for ____________ as maturity approaches. g. The discount bond sells for ____________ as maturity approaches. h. A bondholder with a short-term bond is exposed to ___________ interest rate risk than when owing a long-term bond. i. When interest rates __________, the market required rates of return ________, and…arrow_forward
- The following tutorial question serves as practice questions on TVM and Bond Valuation. (Answer All Parts of the Question A-H) 1. Bond Relationships. Select one or more of the following phrases to complete the following sentences. increase , decrease, par, discount, premium, less than, more than, greater , less a. If the current interest rate exceeds the bond’s coupon rate, the bond will sell at a ___________. b. The value of a bond to increase if there is a/an ________ in interest rates. c. A bond’s coupon rate is more than the interest rate, therefore the bond is selling at a _____________. d. As interest rate increases the value of a bond will ______________. e. If the bondholder’s required rate of return equals the coupon interest rate, the bond will sell at _________. f. A premium bond sells for ____________ as maturity approaches. g. The discount bond sells for ____________ as maturity approaches. h. A bondholder with a short-term bond is exposed to ___________ interest rate risk…arrow_forwardBond Relationships. Select one or more of the following phrases to complete the following sentences. increase , decrease, par, discount, premium, less than, more than, greater , less, fall, rise If the current interest rate exceeds the bond’s coupon rate, the bond will sell at a ___________. The value of a bond to increase if there is a/an ________ in interest rates. A bond’s coupon rate is more than the interest rate, therefore the bond is selling at a _____________. As interest rate increases the value of a bond will ______________. If the bondholder’s required rate of return equals the coupon interest rate, the bond will sell at _________. A premium bond sells for ____________ as maturity approaches. The discount bond sells for ____________ as maturity approaches. A bondholder with a short-term bond is exposed to ___________ interest rate risk than when owing a long-term bond. When interest rates __________, the market required rates of return ________, and the bond prices will…arrow_forwardTo identify: Yeild to maturity (YTM),yeild to call (YTC) and whether the YTM or YTC is more for the investors. Yeild to maturity (YTM):it refers to the rate of interest earned till the maturity of the bond by the bond holder. Yeild to call:It refers to the rate of interest earned till the bonds are being called,but before maturity of the bond.arrow_forward
- A callable bond: Select one: a. can be paid off early at either the issuer's or the bondholder's request b. can have its maturity date extended by the issuer c. can be redeemed early if the bondholder so requests d. can be redeemed by the issuer prior to maturity e. is a bond that pays a variable interest paymentarrow_forwardFrom page 9-2 of the VLN, what is the first thing you want to identify when approaching a bond problem? Group of answer choices A. Annual bond or semiannual bond B. Whether the market rate is different from the stated rate. C. The cash flows provided by the bond. D. The company's debt to equity ratio.arrow_forwardBond Relationships. Select one or more of the following phrases to complete the following sentences. increase , decrease, par, discount, premium, less than, more than, greater , less If the current interest rate exceeds the bond’s coupon rate, the bond will sell at a ___________. The value of a bond to increase if there is a/an ________ in interest rates. A bond’s coupon rate is more than the interest rate, therefore the bond is selling at a _____________. As interest rate increases the value of a bond will ______________. If the bondholder’s required rate of return equals the coupon interest rate, the bond will sell at _________. A premium bond sells for ____________ as maturity approaches. The discount bond sells for ____________ as maturity approaches. A bondholder with a short-term bond is exposed to ___________ interest rate risk than when owing a long-term bond.arrow_forward
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