All else equal, ________ bonds have more reinvestment rate risk than ________ bonds. correct answers high-coupon; low-coupon
A bond with a face value of $1,000 currently sells for a discount. Which of the following statements is most correct? correct answers The bond's yield to maturity is great...
FINC 3511: Final || with Error-free Solutions.
All else equal, ________ bonds have more reinvestment rate risk than ________ bonds. correct
answers high-coupon; low-coupon
A bond with a face value of $1,000 currently sells for a discount. Which of the following
statements is most correct? correct answers The bond's yield to maturity is greater than its
coupon rate.
All else equal, if a bond's yield-to-maturity increases its price will _______. correct answers fall
True or False: A call provision gives the investor the right to force the issuer to buy the bonds
back before maturity. correct answers False
What bonds are issued by state and local governments? correct answers Municipal bonds
True or False: A sinking fund provision in a bond contract gives the issuer the right to redeem
the bonds under specific terms prior to the normal maturity date. correct answers False
_________ is the risk that a decline in interest rates will lead to a decline in income from a bond
portfolio. correct answers reinvestment rate risk
The rate of return earned on a bond if it is held until maturity is its: correct answers yield-to-
maturity.
True or False: The value of a bond is the present value of the future cash flows from the bond
(consisting of the par value at maturity and all intervening coupon payments). correct answers
True
Other things held constant, if a bond indenture contains a call provision, the yield to maturity that
would exist without such a call provision will generally be _________ the YTM with a call
provision. correct answers lower than
The interest earned on most municipal bonds is exempt from federal taxes. correct answers True
With a bond, what generally represents the amount of money the issuer promises to repay on the
maturity date? correct answers par value
A bond that pays no annual interest but is sold at a discount below the par value is called: correct
answers a zero coupon bond.
If a bond is selling for a premium, this implies that the bond's yield to maturity is _________ its
coupon rate. correct answers less than
True or False: All else equal, short-term bonds have more reinvestment rate risk than do long-
term bonds. correct answers True
, True or False: A companys bond rating is not affected by its financial performance and
provisions in the bond contract. correct answers False
What is the stated annual interest rate on a bond called? correct answers coupon interest rate
A long-term contract under which a borrower agrees to make payments of interest and principal
on specific dates is called a: correct answers bond.
The rate of return earned on a bond if it is called before its maturity date is its: correct answers
yield-to-call.
Bonds issued by corporations that are exposed to default risk are called: correct answers
corporate bonds.
If a coupon bond is selling at par, its current yield: correct answers equals its yield to maturity.
True of False: Convertible bond are bonds that may be converted (exchanged) into shares of
common stock, at a fixed price, at the option of the bondholder. correct answers True
What bonds are issued by the Federal government and have no default risk? correct answers
Treasury bonds
The net cash flows attributable to an investment project which represent the change in the firm's
total cash flow that occurs as a direct result of accepting the project are called: correct answers
incremental cash flows
Opportunities to respond to changing circumstances giving mangers the opportunity to influence
a projects outcome are often called _________. correct answers real options
A cash outlay that has already been incurred and that cannot be recovered regardless of whether
the project is accepted or rejected is called: correct answers a sunk cost.
True or False: Beta from the CAPM can be used to measure the market risk of a project. correct
answers True
___________ occurs when the introduction of a new product causes sales of existing products to
decline. correct answers Cannibalization
___________ is a technique in which "bad" and "good" sets of financial circumstances are
compared with a most likely, or base-case, situation. correct answers Scenario analysis
_________ are effects of a project on cash flows in other parts of the firm. correct answers
Externalities
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