Question

True or False? If market interest rate falls to zero, then bonds can be issued at...

  1. True or False?
    1. If market interest rate falls to zero, then bonds can be issued at zero coupon rates and their market values would be zero. FALSE
    2. Interest rate risk for bonds decreases as bond maturity decreases and as the frequency of bond interest payments rises. TRUE
    3. The fair market value of a stock rises with the expected dividend growth rate. FALSE
    4. Companies interested in maximizing shareholder value should choose capital projects with a Net Present Value of at least zero. FALSE – greater than zero
    5. Discounting a cash flow stream using the IRR could result in a positive or negative NPV project. FALSE

Homework Answers

Answer #1

If market interest rate falls to zero, then bonds can be issued at zero coupon rates and their market values would be zero. FALSE

Their market value will be equal to par value

Interest rate risk for bonds decreases as bond maturity decreases and as the frequency of bond interest payments rises. TRUE

Risk reduces with time to maturity

The fair market value of a stock rises with the expected dividend growth rate. TRUE

Value of stock is dependent on dividend growth rate

Companies interested in maximizing shareholder value should choose capital projects with a Net Present Value of at least zero. TRUE – 0 or greater than 0

Discounting a cash flow stream using the IRR could result in a positive or negative NPV project. FALSE, will result in 0 NPV

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
When the coupon rate on newly issued bonds decreases relative to older, outstanding bonds, what happens?...
When the coupon rate on newly issued bonds decreases relative to older, outstanding bonds, what happens? A) The market price of the older bond falls in the secondary market. B) The market price of the older bond rises in the secondary market. C) Older bonds can still be sold at their face value. D) Older bonds will sell for more than their face value.
1. Assume the interest rate in the market for one-year zero-coupon government bonds is i =...
1. Assume the interest rate in the market for one-year zero-coupon government bonds is i = 8% and the rate for one-year zero-coupon grade BBB bonds is k = 10.2%. What is the implied probability of repayment on the corporate bond (round to two decimals)? A. 2.00% B. 2.04% C. 97.96% D. 98.00% 34. 2. Assume the interest rate in the market for one-year zero-coupon government bonds is i = 7.5% and the rate for one-year zero-coupon grade BB bonds...
Bonds must be issued on an interest payment date. True or False
Bonds must be issued on an interest payment date. True or False
For a zero-coupon bond: A. The coupon rate is lower than the market rate B. The...
For a zero-coupon bond: A. The coupon rate is lower than the market rate B. The cash received from investors is less than the bond's face value C. Amortization of bond discount equals to the interest expense D. The bond's net book value rises over time E. All of the above
If the market interest rate rises from 8% to 9% this year, which of the following...
If the market interest rate rises from 8% to 9% this year, which of the following bonds will show the highest price sensitivity? - A 30-year bond, paying 8% annual coupon - A 30-year bond, deep discount bond (you may assume a zero-coupon bond) (Assume the face values are $1,000 for both coupon bond and the zero-coupon bond) Show that a deep discount bond will give higher risk than a coupon bond with same maturity.
Company B had issued 10-year bonds a year ago at the coupon rate 4%. The bond...
Company B had issued 10-year bonds a year ago at the coupon rate 4%. The bond makes annual payments. The yield to maturity (YTM) of these bonds is 5%. The face value of the bond is $1000. Calculate the current bond price. Company B has a second debt issue on the market, a zero coupon bond with 9.6 years left to maturity. The yield to maturity (YTM) of these bonds is 8 %. The face value of the bond is...
Interest Rate Risk There are two bonds issued by Smith Inc. You buy one share of...
Interest Rate Risk There are two bonds issued by Smith Inc. You buy one share of each by paying the market price. Ignore commission. The bond details are provided below: -Bond Long: Face value = $1,000, Coupon = 9% annual, Price = $1,000, Maturity = 20 years. -Bond Short: Face value = $1,000, Coupon = 9% annual, Price = $1,000, Maturity = 2 years. The market interest rates suddenly drop by 2%. And you sell both the bonds. (Using Finance...
Vaughn Ltd. issued a $135,000, 3-year, zero-interest bond dated January 1, 2017. The market interest rate...
Vaughn Ltd. issued a $135,000, 3-year, zero-interest bond dated January 1, 2017. The market interest rate for similar bonds was 8.25%. Assume the company used the effective interest method of amortization. 1. Prepare the journal entry for the issue of the bond. 2. Prepare a schedule of bond discount/premium amortization. (Round answers to 0 decimal places) 3. Prepare the journal entry at December 31, 2017, assuming the company’s year-end was December 31.
Yesterday Google issued 20 Year bonds with a 5% Interest Rate/Coupon when the required rate of...
Yesterday Google issued 20 Year bonds with a 5% Interest Rate/Coupon when the required rate of return or yield to maturity was 5%. Today, investors are requiring an 8% return or yield to maturity. What will be the new market price of the bond?
Activation Exercise 12-1: Bonds Issued at a Discount Terms and Definitions The interest rate paid on...
Activation Exercise 12-1: Bonds Issued at a Discount Terms and Definitions The interest rate paid on the face amount of a bond is called the of interest. The interest rate paid on similar risk bonds is called the of interest. When the contract rate of interest is less than the market rate of interest, the bonds will sell for their face value. The difference between the selling price and the face amount of the bonds in this case is called...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT