Chapter 7 The Valuation and Characteristics of Bonds

5) Other things held equal, a bond with a call provision is worth more to investors than a bond without a call provision.

6) Bonds generally have a maturity date while preferred stocks do not.

7) Bond prices are inversely related to market interest rates.

8) If the demand for a new bond issue increases, it is likely that the coupon rate will be adjusted upward by the issuing company.

9) If a bond's rating declines, the interest rate demanded by investors, called the required return, also decreases.

10) A bond is a long-term promissory note issued by the firm.

11) In the case of insolvency, the claims of debt are honored prior to those of common stock and after those of preferred stock.

12) Debentures are expected to have a lower yield than secured bonds because the debentures are more risky and therefore less desirable.

13) The Wall Street Journal bond quotes indicate that the net close for a bond with a $1,000 par value is 100¾. The closing price for that bond was $100.75.

14) Junk bonds typically have an interest rate of between 3 and 5 percent more than AAA-rated long-term debt.