MBA 702 LSUS M2 - Bond Valuation-
Kim Summer 23 Questions and
Correct Answers.
What is a bond - Answer A long-term debt instrument in which a borrower agrees to make
payments of principal and interest, on specific dates, to the holders of the bond
Treasury bonds: - Answer bonds issued by the federal government, sometimes referred to as
government bonds
Corporate bonds: - Answer bonds issued by corporations
Municipal bonds: - Answer bonds issued by state and local government
Foreign bonds: - Answer bonds issued by foreign governments or by foreign corporations
Par value: - Answer face amount of the bond, which is paid at maturity
Coupon interest rate: - Answer stated interest rate (generally fixed) paid by the issuer.
Multiply by par value to get dollar payment of interest
Maturity date: - Answer years until the bond must be repaid
Issue date: - Answer when the bond was issued
Yield to maturity: - Answer rate of return earned on a bond yield held until maturity(also
called the "promised yield")
Call Provisions - Answer Allows issuer to refund the bond issue if rates decline (helps the
issuer, but hurts the investor)Bond investors require higher yields on callable bonds. In many
cases, callable bonds include a deferred call provision
Other Types (Features) of Bonds - Answer Convertible bond, Warrant. Putable, Income,
Indexed
Convertible bond: - Answer may be exchanged for common stock of the firm, at the holder's
option.
Kim Summer 23 Questions and
Correct Answers.
What is a bond - Answer A long-term debt instrument in which a borrower agrees to make
payments of principal and interest, on specific dates, to the holders of the bond
Treasury bonds: - Answer bonds issued by the federal government, sometimes referred to as
government bonds
Corporate bonds: - Answer bonds issued by corporations
Municipal bonds: - Answer bonds issued by state and local government
Foreign bonds: - Answer bonds issued by foreign governments or by foreign corporations
Par value: - Answer face amount of the bond, which is paid at maturity
Coupon interest rate: - Answer stated interest rate (generally fixed) paid by the issuer.
Multiply by par value to get dollar payment of interest
Maturity date: - Answer years until the bond must be repaid
Issue date: - Answer when the bond was issued
Yield to maturity: - Answer rate of return earned on a bond yield held until maturity(also
called the "promised yield")
Call Provisions - Answer Allows issuer to refund the bond issue if rates decline (helps the
issuer, but hurts the investor)Bond investors require higher yields on callable bonds. In many
cases, callable bonds include a deferred call provision
Other Types (Features) of Bonds - Answer Convertible bond, Warrant. Putable, Income,
Indexed
Convertible bond: - Answer may be exchanged for common stock of the firm, at the holder's
option.
