Name: _______________________________________ Date: _________________

FIN 115: (Chapter 7-Valuation and Characteristics of Bonds)

A. Blacken the circle of the option of your choice.
1. Which is a type of bond?
O. debenture O. indenture O. denture
2. It applies to any unsecured long-term debt.
O. debenture O. indenture O. subordinated debenture
3. A debenture that is subordinated to other debentures in being paid in the case of insolvency.
O. debenture O. indenture O. subordinated debenture
4. A bond secured by a lien on real property.
O. junk bonds O. mortgage bond O. Eurobonds O. zero coupon bonds
5. Bonds issued in a country different from the one in whose currency the bond is denominated.
O. junk bonds O. mortgage bond O. Eurobonds O. zero coupon bonds
6. Bonds issued at a substantial discount that pay no or little interest.
O. junk bonds O. mortgage bond O. Eurobonds O. zero coupon bonds
7. Bonds that have the high interest rates paid to the investor.
O. junk bonds O. mortgage bond O. Eurobonds O. zero coupon bonds
8. The bond’s face value that is returned to the bondholder at maturity.
O. par value O. interest rate O. maturity O. indenture
9. The length of time until the bond issuer returns the par value to the bondholder and terminates
the bond
O. par value O. interest rate O. maturity O. indenture
10. Indicates what percentage of the par value of the bond will be paid out annually in the form of
interest.
O. par value O. interest rate O. maturity O. indenture
11. The legal agreement or contract between the firm issuing the bonds and the bond trustee who
represents the bondholders.
O. par value O. interest rate O. maturity O. indenture
12. The value of an asset as shown on a firm’s balance sheet.
O. book value O. liquidation value O. intrinsic value O. market value
13. It represents the historical cost of the asset rather than its current market value or replacement
cost.
O. book value O. liquidation value O. intrinsic value O. market value
14. The amount that could be realized if an asset were sold individually and not as a part of a going
concern.
O. book value O. liquidation value O. intrinsic value O. market value
15. The observed value for the asset in the marketplace.
O. book value O. liquidation value O. intrinsic value O. market value
16. In order to value an asset, you must know three essential elements:
O. Riskiness of cash flows, different levels of interest rates, and par value.
O. The amount of the cash flows to be received, the riskiness of the cash flows, and the
investor’s required rate of return.
O. The rating, the liquidation value, and the intrinsic value.
O. The rating, the terms of agreement, and the current yield.
17. Which of the following is NOT a characteristic of a debenture?
O. The term debenture applies to any unsecured debt.
O. A debenture is backed by a lien on real property.
O. A debenture would have a higher yield than secured debt.
O. Some debentures are given subordinate status in comparison to other debentures in the case of
insolvency.
18. The bond’s face value that is returned to the bondholder at maturity is referred to as the bond’s:
O. intrinsic value. O. book value. O. par value. O. market value.
19. Which of the following statements about bond valuation is true?
O. When an investor’s required rate of return equals the bond’s coupon rate, then the
market value of the bond will be less than par value.
O. When an investor’s required rate of return exceeds the bond’s coupon rate, then the
market value of the bond will be greater than par value.
O. When an investor’s required rate of return is less than the bond’s coupon rate, then the
market value of the bond will be greater than par value.
O. When an investor’s required rate of return is less than the bond’s coupon rate, then the
market value of the bond will be less than par value.
20. What is the value of a bond that matures in 10 years, has an annual coupon rate of 6%, and has a par
value of P1,000? Assume that an investor has a required rate of return of 12% and that the bond pays
annual coupon payments.
O. P350.00 O. P400.97 O. P505.37 O. P660.97