# Document641.pdf

to problems on an Excel spreadsheet using formulas for your calculations. I will be

• Chapter 6

• Question 6-3

• Question 6-10

• Questions

• 6-3 Suppose you believe that the economy is just entering a recession. Your firm must raise

capital immediately, and debt will be used. Should you borrow on a long-term or a short- term

basis? Why?

• 6-10 Suppose you have noticed that the slope of the corporate yield curve has become

steeper over the past few months. What factors might explain the change in the slope?

• Chapter 7

• Question 7-3

• Question 7-14

• Problem 7-1

• Problem 7-2

• Problem 7-3

• Questions

• 7-3 The values of outstanding bonds change whenever the going rate of interest changes. In

general, short-term interest rates are more volatile than long-term interest rates. Therefore,

short-term bond prices are more sensitive to interest rate changes than are long-term bond

prices. Is that statement true or false? Explain. (Hint: Make up a “reasonable” example based on

a 1-year and a 20-year bond to help answer the question.)

• 7-14 Would the yield spread on a corporate bond over a Treasury bond with the same

maturity tend to become wider or narrower if the economy appeared to be heading toward a

recession? Would the change in the spread for a given company be affected by the firm’s credit

strength? Explain.

• Problem

• 7-1 BOND VALUATION Madsen Motors’s bonds have 23 years remaining to

maturity. Interest is paid annually; they have a \$1,000 par value; the

coupon interest rate is 9%; and the yield to maturity is 11%. What is the

bond’s current market price?

• 7-2 YIELD TO MATURITY AND FUTURE PRICE A bond has a \$1,000 par

value, 12 years to maturity, and an 8% annual coupon and sells for \$980

• 7-3 BOND VALUATION Nesmith Corporation’s outstanding bonds have a

\$1,000 par value, an 8% semiannual coupon, 14 years to maturity, and an

11% YTM. What is the bond’s price?