PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 24, Problem 6PS
Bond terms
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Explain why bond prices fluctuate in response to changing interest rates. What adverse effect might occur if bond prices remain fixed prior to their maturity?
Explain how does a bond par value differs from its market value?
Are variable rate bonds attractive to investors who expect the interest rates to decrease? Explain. Would a firm that needs to borrow funds consider issuing variable rate bonds if it expects interest rates to decrease in the future? Explain.
Interest-rate risk results from:
a. Bond prices being fixed over the life of the bond
b. Inflation being uncertain
c. A mismatch between an individual's investment horizon and a bond's maturity
d. The fact that most people hold bonds until they mature
Chapter 24 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 24 - Bond terms Use Table 24.1 (but not the text) to...Ch. 24 - Bond terms Look at Table 24.1: a. The AMAT bond...Ch. 24 - Bond terms Select the most appropriate term from...Ch. 24 - Prob. 5PSCh. 24 - Bond terms Bond prices can fall either because of...Ch. 24 - Security and seniority a. As a senior bondholder,...Ch. 24 - Prob. 8PSCh. 24 - Prob. 9PSCh. 24 - Security and seniority a. Residential mortgages...Ch. 24 - Sinking funds For each of the following sinking...
Ch. 24 - Call provisions a. Look at Table 24.1. Suppose...Ch. 24 - Covenants Alpha Corp. is prohibited from issuing...Ch. 24 - Prob. 14PSCh. 24 - Private placements Explain the three principal...Ch. 24 - Convertible bonds True or false? a. Convertible...Ch. 24 - Convertible bonds Maple Aircraft has issued a 4%...Ch. 24 - Convertible bonds The Surplus Value Company had 10...Ch. 24 - Prob. 19PSCh. 24 - Convertible bonds Iota Microsystems 10%...Ch. 24 - Convertible bonds Zenco Inc. is financed by 3...Ch. 24 - Prob. 22PSCh. 24 - Prob. 23PSCh. 24 - Bank loans, commercial paper, and medium-term...Ch. 24 - Prob. 25PSCh. 24 - Tax benefits Dorlcote Milling has outstanding a 1...Ch. 24 - Convertible bonds This question illustrates that...Ch. 24 - Prob. 28PS
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- Is the price of a long-term (longer-maturity) bond more or less sensitive to changes in interest rates than that of a short-term bond? Why?arrow_forward“Short-term interest rates are more volatile than long-term interest rates, soshort-term bond prices are more sensitive to interest rate changes than arelong-term bond prices.” Is this statement true or false? Explain.arrow_forwardInterest-rate risk results from: Answer a. Bond prices being fixed over the life of the bond b. Inflation being uncertain c. A mismatch between an individual investment horizon and a bond maturity d. The fact that most people hold bonds until they maturearrow_forward
- Which one of the following statements is NOT true? As interest rates increase, bond prices increase. Interest rate risk is the risk that bond prices will change as interest rates change. Interest rate changes and bond prices are inversely related. Long-term bonds have more price volatility than short-term bonds of similar riskarrow_forwardShort-term interest rates are more volatile than long-term interest rates. Despite this, rates of return on long-term bonds are more volatile than rates of return on short-term securities. How can these two empirical observations be reconciled?arrow_forwardIf interest rates in the financial markets increase after a bond is issued, what will happen to the bond's price and to its yield to maturity? Does the length of time to maturity affect the extent to which a given change in interest rates will affect the bond's price?arrow_forward
- How is a bond’s duration impacted by varying the coupon rate? How is a bond’s duration impacted by varying the time to maturity? What implications would these impacts have for a bond investor if interest rates change?arrow_forwardAn 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.arrow_forwardThe risk that a bond cannot be sold since the issuer is not well known is called: a.default risk b.interest rate risk c.inflation risk d.liquidity riskarrow_forward
- Explain the impact of a decline in interest rates on the prices of existing bonds.arrow_forwardWhich 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 unansweredarrow_forward
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