Question

4. Beautiful New Homes, Inc., has a bond issue with a coupon rate of 5.5 percent that matures in 8.5 years. The bonds have a par value of $1,000 and a market price of $945. Interest is paid semiannually. The yield to maturity on bonds of comparable risk have yields to maturity of 5.5%. Is this bond a good investment? A. No, because the bond is worth less than the price. B. No, because the bond's yield to maturity is less than the required yield. C. No, because the bond's current yield is too low.. D. Yes, because the bond's price is less than it's value. E. Maybe, because the bond's price equals its value.

5. Protective covenants:    A. Apply to short-term debt issues but not to long-term debt issues. B. Only apply to privately issued bonds. C. Are a feature found only in government-issued bond indentures. D. Only apply to bonds that have a deferred call provision. E. Are primarily designed to protect bondholders from borrower default risk

Answer 1

1.

Coupon Rate = YTM

So,

Bond's fair value = Par Value

As Bond's Price is less than Par Value

Option D is correct

Yes, because the bond's price is less than it's value.

2.

Are primarily designed to protect bondholders from borrower default risk