finance data bank

Question # 00003824 Posted By: spqr Updated on: 11/21/2013 10:15 AM Due on: 11/30/2013
Subject Finance Topic Finance Tutorials:
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Use the table for the question(s) below.

Consider the following zero-coupon yields on default free securities:

Maturity (years)

1

2

3

4

5

Zero-Coupon YTM

5.80%

5.50%

5.20%

5.00%

4.80%


16)


The price today of a 3 year default free security with a face value of $1000 and an annual coupon rate of 6% is closest to:


A)


$1000


B)


$1021


C)


$1013


D)


$1005






17)


The YTM of a 3 year default free security with a face value of $1000 and an annual coupon rate of 6% is closest to:


A)


5.5%


B)


5.8%


C)


5.5%


D)


5.2%






18)


A 4 year default free security with a face value of $1000 and an annual coupon rate of 5.25% will trade


A)


at a premium.


B)


at par.


C)


at a discount.


D)


There is insufficient information to provided to answer this question.







8.4 Corporate Bonds


19)


A corporate bond which receives a BBB rating from Standard and Poor's is considered


A)


a junk bond.


B)


an investment grade bond.


C)


a defaulted bond.


D)


a high-yield bond.







20)


Which of the following statements is false?


A)


Because the cash flows promised by the bond are the most that bondholders can hope to receive, the cash flows that a purchaser of a bond with credit risk expects to receive may be less than that amount.


B)


By consulting bond ratings, investors can assess the credit-worthiness of a particular bond issue.


C)


Because the yield to maturity for a bond is calculated using the promised cash flows, the yield of bond’s with credit risk will be lower than that of otherwise identical default-free bonds.


D)


A higher yield to maturity does not necessarily imply that a bond's expected return is higher.




Use the table for the question(s) below.

Consider the following yields to maturity on various one-year zero-coupon securities:

Security

Yield (%)

Treasury

4.6

AAA corporate

4.8

BBB corporate

5.6

B Corporate

6.2




WS3)


The credit spread of the BBB corporate bond is closest to:


A)


1.0%


B)


5.6%


C)


1.6%


D)


0.8%


21)


The credit spread of the B corporate bond is closest to:


A)


1.6%


B)


0.8%


C)


1.0%


D)


1.4%



Use the information for the question(s) below.

Luther Industries needs to raise $25 million to fund a new office complex. The company plans on issuing ten-year bonds with a face value of $1000 and a coupon rate of 7.0% (annual payments). The following table summarizes the YTM for similar ten-year corporate bonds of various credit ratings:

Rating

AAA

AA

A

BBB

BB

YTM

6.70%

6.80%

7.00%

7.40%

8.00%




22)


What rating must Luther receive on these bonds if they want the bonds to be issued at par?


A)


A


B)


B


C)


BBB


D)


AA




23)


Suppose that when these bonds were issued, Luther received a price of $972.42 for each bond. What is the likely rating that Luther's bonds received?


A)


AA


B)


BBB


C)


B


D)


A



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  1. Tutorial # 00003627 Posted By: spqr Posted on: 11/21/2013 10:20 AM
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