Master of Health Administration (MHA) 706:
Leadership, Organizational Responsibility, and
Development – Final Assessment
Debt Ratings...
reflect the probability of default
Nothing...
is riskless! Remember that any investment has risk.
Long-term bonds have high price risk but...
low reinvestment rate risk
Short-term bonds have low price risk but...
high reinvestment rate risk
Maturity Date
Date when the par value will be repaid to investors
Debt Service Requirements...
reflect mandatory requirements of the debt issue, concerning issues such as total
debt service payments, interest expense, and repayment of principle
Coupon Rate
Stated interest rated on the bond
Par Value
, Stated face value of the bond
New versus Seasoned Bonds
When market conditions change, the value of outstanding bonds change.
TRUE/FALSE: At maturity, a bond's value must equal its par value (plus final
interest payments.)
True
The value of a discount bond...
will increase to par value at maturity
The return in each year consists of...
the yield and capital gains yield
The value of a premium bond...
will decrease to par value of maturity
A par bond value...
will remain at par if interest rates remain constant
The yield to maturity, is theoretically the discount rate that forces the present
value of the cash flows from the bond to __________ the bond's price.
equal
Interest rates change constantly, which provides different types of interest rate
risk. What are they?
Reinvestment rate risk
Price risk
Reinvestment Rate Risk...
arises because reinvested coupon payments earn less when interest rates fall.
Price Risk...
arises because bond values decline when interest rates rise.
Leadership, Organizational Responsibility, and
Development – Final Assessment
Debt Ratings...
reflect the probability of default
Nothing...
is riskless! Remember that any investment has risk.
Long-term bonds have high price risk but...
low reinvestment rate risk
Short-term bonds have low price risk but...
high reinvestment rate risk
Maturity Date
Date when the par value will be repaid to investors
Debt Service Requirements...
reflect mandatory requirements of the debt issue, concerning issues such as total
debt service payments, interest expense, and repayment of principle
Coupon Rate
Stated interest rated on the bond
Par Value
, Stated face value of the bond
New versus Seasoned Bonds
When market conditions change, the value of outstanding bonds change.
TRUE/FALSE: At maturity, a bond's value must equal its par value (plus final
interest payments.)
True
The value of a discount bond...
will increase to par value at maturity
The return in each year consists of...
the yield and capital gains yield
The value of a premium bond...
will decrease to par value of maturity
A par bond value...
will remain at par if interest rates remain constant
The yield to maturity, is theoretically the discount rate that forces the present
value of the cash flows from the bond to __________ the bond's price.
equal
Interest rates change constantly, which provides different types of interest rate
risk. What are they?
Reinvestment rate risk
Price risk
Reinvestment Rate Risk...
arises because reinvested coupon payments earn less when interest rates fall.
Price Risk...
arises because bond values decline when interest rates rise.
