05 Finance

The par value of a bond

• never equals its market value.

• is determined by the investor.

• generally is $1,000.

• is never returned to the bondholder.

Advantages to borrowing in the private market include

• less restrictive covenants.

• reduced initial costs.

• lower interest costs.

• avoiding future SEC registration.

The detailed legal agreement between a bond's issuer and and its trustees is known as the

• collateral agreement.

• call provision.

• indenture.

• covenant.

Which of the following features allows a borrower to redeem or repurchase a bond issue before its maturity date?

• the call provision

• convertibility

• floating rate

• the priority of claims

The yield to maturity on a bond

• is fixed in the indenture.

• is lower for higher-risk bonds.

• is the required return on the bond.

• is generally equal to the coupon interest rate.

All of the following affect the value of a bond EXCEPT

• investors' required rate of return.

• the recorded value of the firm's assets.

• the coupon rate of interest.

• the maturity date of the bond.

A $1,000 par value 10-year bond with a 10% coupon rate recently sold for $900. The yield to maturity

• is 10%.

• is greater than 10%.

• is less than 10%.

• cannot be determined.

Bond ratings directly affect a bond's

• spread over the Treasury yield.

• coupon rate.

• maturity date.

• call provisions.

The discount rate used to value a bond is

• the coupon interest rate.

• determined by the issuing company.

• fixed for the life of the bond.

• the market rate of interest.

As interest rates, and consequently investors' required rates of return, change over time, the ________ of outstanding bonds will also change.

• maturity date

• coupon interest payment

• par value

• price