• Assignment week 5 you will submit your written answers to questions and calculated answers
to problems on an Excel spreadsheet using formulas for your calculations. I will be
downloading the spreadsheet to review the formulas in the cells of your answers.
• 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?
