Finance Misc. Multiple Choice

    Assume coupons are paid annually. Here are the prices of three bonds with 10-year maturities:Bond Coupon (%) Price (%)5 81.007 100.009 131.00________________________________________a. What is the yield to maturity for each bond? (Round your answers to 1 decimal place.)Bond Coupon (%) YTM5 %7 %9 %________________________________________b. Which bond offered the highest yield to maturity?5% coupon bond9% coupon bond7% coupon bondc. Which bond offered the lowest yield to maturity?9% coupon bond5% coupon bond7% coupon bondd-1. Which bond had the longest duration?5% coupon bond7% coupon bond9% coupon bondd-2. Which bond had the shortest duration?5% coupon bond7% coupon bond9% coupon bonda. An 7.1%, ten-year bond yields 5.1%. If the yield remains unchanged, what will be its price one year hence? Assume annual coupon payments. (Do not round intermediate calculations. Round your answer to 2 decimal places.)Price $b. What is the total return to an investor who held the bond over this year? (Do not round intermediate calculations. Round your answer to 1 decimal place.)Total return %A 10-year bond is issued with a face value of $1,000, paying interest of $60 a year. Assume market yields increase shortly after the T-bond is issued.a. What happens to the bond’s coupon rate?RisesFallsDoes not changeb. What happens to the bond’s price?RisesFallsDoes not changec. What happens to the bond’s yield to maturity?RisesFallsDoes not changeMaple Aircraft has issued a 5.00% convertible subordinated debenture due 2014. The conversion price is $48.00 and the debenture is callable at 103.00% of face value. The market price of the convertible is 91.25% of face value, and the price of the common is $42.50. Assume that the value of the bond in the absence of a conversion feature is about 65.25% of face value.a. What is the conversion ratio of the debenture? (Round your answer to 2 decimal places.)Conversion ratiob. If the conversion ratio were 50.25, what would be the conversion price? (Round your answer to 2 decimal places.)Conversion price $c. What is the conversion value? (Do not round intermediate calculations. Round your answer to 2 decimal places.)Conversion value %d. At what stock price is the conversion value equal to the bond value? (Do not round intermediate calculations. Round your answer to 2 decimal places.)Stock price $e. Can the market price be less than the conversion value?YesNof. How much is the convertible holder paying for the option to buy one share of common stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)Convertible pay $g. By how much does the common have to rise by 2014 to justify conversion? (Do not round intermediate calculations. Round your answer to 2 decimal places.)Conversion value %h. When should Maple call the debenture? (Round your answer to 2 decimal places.)When the price of the bond reaches % of face value.The trust company for a bond issue represents the:managers of the firm.firm’s shareholders.firm’s board of directors.firm’s bondholders.Which of the following bonds is secured by assets?A mortgage bondA floating rate bondA debentureAn indentureLong-term bonds that are unsecured obligations of a company are called:Indentures.Debentures.Mortgage bonds.Bearer bonds.The recovery rate on defaulting debt is the highest for the following type of debt:bank debt.senior secured bonds.senior subordinated bonds.junior subordinated bonds.Firms often bundle up a group of assets and then sell the cash flows from these assets in the form of securities. They are called:debentures.subordinated issues.asset-backed securities.mortgage bonds.A sinking fund is useful to a corporation because:the corporation does not have to worry about paying the bondholders.it provides the corporation with the option to buy the bonds back at the lower of face value or market price.the payments to the sinking fund are not necessary when the firm is in financial difficulty.they are simple and easy to monitor.A puttable provision in a bond allows the:issuer to call the bond at par on the coupon payment date.holder to redeem the bond at par before maturity.issuer to extend the maturity of the bond.holder to extend the maturity of the bond.Which of the following is not an example of an affirmative (positive) covenant?Requirement to maintain a minimum level of working capitalRequirement to furnish bondholders with a copy of the firm’s annual accountsRequirement to limit dividends to net incomeRequirement to maintain a minimum level of net worthIf a corporate security can be exchange for a fixed number of shares of stock, the security is said to be:callable.convertible.protected.none of the options.A $1,000 face value bond can be exchanged any time for 25 shares of stock.Then the conversion price is:$40$25$100$975

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