16. If a bond have a face amount of $10,000, annual interest payments at a rate

Question

16. If a bond have a face amount of $10,000, annual interest payments at a rate 65% term of 10 years, the present value of the required payments of prinpl ana under the bond is equal to? (Hint: Calculate for P) principal an and a 17. Would you expect the rate of return required by nvestors to be greater for unkbonds or highly rated corporate bonds? And why? 18. The price-to-earnings (P-E Ratios) of different companies can be compared witheach other? (TruelFalse) 9. In a corporation, who determines whether the shareholders wil receive dividend distributions and if so, how much? (a) Board of Shareholders b) Board of Directors (c) Management (d) Employees If you invest a lump sum at a rate of return of 10% will you be better of (in terms of total future value) if you invest it today or if you wait until 7 years from now? tff the retuns aungG are less Hnan lo then ve w r ing years (c) common stock er things be equal, what would you consider to be the least riat smenn 5 year corporate bond Preferred stock 3 year Treasury Security a) b) iectly with a company's ability to meet its current

Explanation / Answer

16) When the coupon rate is equal to required rate, the present value of the principal and interest payment of the bond is equal to the par value.

Hence, PV for this bond = $10,000 if r = 6%

17) Required return is higher for 'junk' bonds than for highly rated corporate bonds because of the high risk associated with junk bonds.

Junk bonds are bonds of companies that are highly leveraged and have a high probability of default, for which they reward investors with higher returns.

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