Question Details

Moerdyk Corporation's bonds have a 15-year maturity


1.	A 15-year bond with a face value of $1,000 currently sells for $850.  Which of the following statements is CORRECT?

a.	The bond- coupon rate exceeds its current yield.
b.	The bond- current yield exceeds its yield to maturity.
c.	The bond- yield to maturity is greater than its coupon rate.
d.	The bond- current yield is equal to its coupon rate.
e.	If the yield to maturity stays constant until the bond matures, the bond- price will remain at $850.


2.	A 10-year Treasury bond has an 8% coupon, and an 8-year Treasury bond has a 10% coupon.  Neither is callable, and both have the same yield to maturity.  If the yield to maturity of both bonds increases by the same amount, which of the following statements would be CORRECT?

a.	The prices of both bonds will decrease by the same amount.
b.	Both bonds would decline in price, but the 10-year bond would have the greater percentage decline in price.
c.	The prices of both bonds would increase by the same amount.
d.	One bond's price would increase, while the other bond- price would decrease.
e.	The prices of the two bonds would remain constant.
	

3.	If its yield to maturity declined by 1%, which of the following bonds would have the largest percentage increase in value?

a.	A 1-year zero coupon bond.
b.	A 1-year bond with an 8% coupon.
c.	A 10-year bond with an 8% coupon.
d.	A 10-year bond with a 12% coupon.
e.	A 10-year zero coupon bond.


4.	McCue Inc.'s bonds currently sell for $1,250.  They pay a $90 annual coupon, have a 25-year maturity, and a $1,000 par value, but they can be called in 5 years at $1,050.  Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future.  What is the difference between this bond's YTM and its YTC?  (Subtract the YTC from the YTM; it is possible to get a negative answer.)

a.	2.62%
b.	2.88%
c.	3.17%
d.	3.48%
	e. 3.83%
	
5.	A 25-year, $1,000 par value bond has an 8.5% annual payment coupon.  The bond currently sells for $925.  If the yield to maturity remains at its current rate, what will the price be 5 years from now?

a.	$884.19
b.	$906.86
c.	$930.11
d.	$953.36
e.	$977.20
	

6.	Moerdyk Corporation's bonds have a 15-year maturity, a 7.25% semiannual coupon, and a par value of $1,000.  The going interest rate (rd) is 6.20%, based on semiannual compounding.  What is the bond- price?

a.	$1,047.19
b.	$1,074.05
c.	$1,101.58
d.	$1,129.12
e.	$1,157.35
	

7.	In order to accurately assess the capital structure of a firm, it is necessary to convert its balance sheet figures from historical book values to market values.  KJM Corporation's balance sheet (book values) as of today is as follows:

Long-term debt (bonds, at par)	$23,500,000
Preferred stock		2,000,000
Common stock ($10 par)		10,000,000
Retained earnings		  4,000,000
Total debt and equity		$39,500,000

	The bonds have a 7.0% coupon rate, payable semiannually, and a par value of $1,000.  They mature exactly 10 years from today.  The yield to maturity is 11%, so the bonds now sell below par.  What is the current market value of the firm's debt?

a.	$17,436,237
b.	$17,883,320
c.	$18,330,403
d.	$7,706,000
e.	$7,898,650



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