Question

1. Vron Motorworks has a​ $1,000 par​ value, 8% annual coupon bond with interest payable semiannually with a remaining term of 15 years. The annual market yield on similar bonds is​ 6%. This bond will at a discount from par.

True

False

2. A​ bond's "spread" refers to the difference between​ it's Moody's rating and its Standard​ & Poors rating.

True

False

3. Which of the following statements is​ true?

a. A bond will sell at a premium if the prevailing required rate of return is less than the​ bond's coupon rate.

b. A zero coupon is a bond that is secured by a lien on real property.

c. The legal document that describes all of the terms and conditions of a bond issue is called a debenture agreement.

d. A bond that has a rating of AA is considered to be a junk bond.

4. CCV Drugs sold an issue of 30−​year, ​$1,000 par value bonds to the public that carry a​ 10.85% coupon​ rate, payable semiannually. It is now 10 years​ later, and the current market rate of interest is​ 9.00%. If interest rates remain at​ 9.00% until​ CCV's bonds​ mature, what will happen to the value of the bonds over​ time?

a. The bonds will sell at a discount and rise in value until maturity.

b. The bonds will sell at a premium and rise in value until maturity.

c. The bonds will sell at a discount and fall in value until maturity.

d. The bonds will sell at a premium and decline in value until maturity.

Answer 1

1)

False, the bond will be at a premium, as coupon rate is higher than yield

2)

False

3)

a. A bond will sell at a premium if the prevailing required rate of return is less than the​ bond's coupon rate.

4)

d. The bonds will sell at a premium and decline in value until maturity.