Business Finance Test #2 CH 6

Excel termPrice PV(
Excel termCoupons PMT(
Excel termFace value/par value FV(
Excel termNumber of Periods NPER(
Excel termYield to Mature Rate(
What does the bid price mean? how much the dealer will buy bond for
What does the asked price mean? how much the dealer will sell the bond for
What is the principal amount of a bond that is repaid at the end of the loan term called? face value
A bond’s annual interest divided by its face value is referred to as the: coupon rate
The written agreement that contains the specific details related to a bond issue is called the bond: indenture
Russell’s has a bond issue outstanding. The issue’s indenture provision prohibits the firm from redeeming the bonds during the first five years following issuance. This provision is referred to as the _____ provision. deferred call
A protective covenant: limits the actions of the borrower
When a bond’s yield to maturity is less than the bond’s coupon rate, the bond: is selling at a premium
The purpose of a bond sinking fund is to: repay bonds early either through purchases or calls.
The primary purpose of bond covenants is to: protect the bondholders
The primary purpose of protective covenants is to help: protect bondholders from issuer actions
Which one of the following terms applies to a junk bond that was originally issued with a bond rating of AA? fallen angel
Zero coupon bonds: create annual taxable income to individual bondholders
true or false-are bond markets dealer based? true
A U.S. Treasury bond pays 3.05 percent interest. You are in the 28 percent marginal tax bracket. What is your after tax yield on this bond? ——2.2
The market-required rate of return on a bond that is held for its entire life is called the: yield to maturity
A bond trader just purchased and resold a bond. The amount of profit earned by the trader from this purchase and resale is referred to as the: bid-ask spread
All else held constant, the present value of a bond increases when the: yield to maturity decreases
A bond has a $1,000 face value, a market price of $1,045, and pays interest payments of $74.50 every year. What is the coupon rate? ___________________________________CR= 7.45%
Real rates vs Nominal Rates Real rates – interest rates or rates of return that have been adjusted for inflationNominal rates – interest rates or rates of return that have NOT been adjusted for inflation
coupon The stated interest payment made on a bond
bond ratings classify bonds based on default risk only
in relation to bonds, which of the following terms has the same meaning as the term crossover 5B
Changes in interest rates affect bond prices. Which one of the following compensates bond investors for this risk? interest rate premium

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