Question 1

The following are secured bonds except

Accepted Answer

A) mortgage bonds. 
B) debentures. 
C) collateral trust bonds. 
D) equipment trust certificates. 
A) mortgage bonds. 
B) debentures. 
C) collateral trust bonds. 
D) equipment trust certificates.

Question 2

Project finance requires a capital investment that can be clearly separated from the parent and offers tangible security to lenders.

Accepted Answer

A) True 
 B)False

Question 3

LYONs are bonds that are
I.callable;
II.puttable;
III.convertible;
IV.zero-coupon

Accepted Answer

A) I and II only 
B) I, II, and III 
C) I, II, III, and IV 
D) II, III, and IV 
A) I and II only 
B) I, II, and III 
C) I, II, III, and IV 
D) II, III, and IV

Question 4

Explain the differences between warrants and convertibles.

Accepted Answer

The main differences are that warrants a

Question 5

Floating-rate bonds have adjustable rates to protect real rates of return against inflation. The rates paid are limited by

Accepted Answer

A) the put provisions of the issues. 
B) a floor rate that sets the minimum. 
C) a cap rate that sets the maximum. 
D) a floor rate that sets the minimum and a cap rate that sets the maximum. 
A) the put provisions of the issues. 
B) a floor rate that sets the minimum. 
C) a cap rate that sets the maximum. 
D) a floor rate that sets the minimum and a cap rate that sets the maximum.

Question 6

Long-term bonds that are unsecured obligations of a company are called

Accepted Answer

A) indentures. 
B) debentures. 
C) mortgage bonds. 
D) bearer bonds. 
A) indentures. 
B) debentures. 
C) mortgage bonds. 
D) bearer bonds.

Question 7

In general, which of the following statements is true?

Accepted Answer

A) Bonds issued in the United States pay interest annually, while bonds issued in other countries pay interest semiannually. 
B) Bonds issued in the United States and other countries pay interest semiannually. 
C) Bonds issued in the United States and other countries pay interest annually. 
D) Bonds issued in the United States pay interest semiannually, while bonds issued in other countries pay interest annually. 
A) Bonds issued in the United States pay interest annually, while bonds issued in other countries pay interest semiannually. 
B) Bonds issued in the United States and other countries pay interest semiannually. 
C) Bonds issued in the United States and other countries pay interest annually. 
D) Bonds issued in the United States pay interest semiannually, while bonds issued in other countries pay interest annually.

Question 8

Which of the following is the most sensible reason for issuing convertibles?

Accepted Answer

A) Convertibles are convenient and flexible-they're usually unsecured and subordinated, and cash requirements for debt service are relatively low. 
B) Interest rates on convertible issues are significantly less than on straight debt. 
C) Firms that need equity capital use convertibles as a roundabout way of issuing stock. 
D) Firms prefer to issue convertibles when their shares are undervalued. 
A) Convertibles are convenient and flexible-they're usually unsecured and subordinated, and cash requirements for debt service are relatively low. 
B) Interest rates on convertible issues are significantly less than on straight debt. 
C) Firms that need equity capital use convertibles as a roundabout way of issuing stock. 
D) Firms prefer to issue convertibles when their shares are undervalued.

Question 9

A puttable provision in a bond allows the

Accepted Answer

A) issuer to call the bond at par on the coupon payment date. 
B) holder to redeem the bond at par before maturity. 
C) issuer to extend the maturity of the bond. 
D) holder to extend the maturity of the bond. 
A) issuer to call the bond at par on the coupon payment date. 
B) holder to redeem the bond at par before maturity. 
C) issuer to extend the maturity of the bond. 
D) holder to extend the maturity of the bond.

Question 10

Which of the following situations increase the difficulty of valuing convertible bonds?

Accepted Answer

A) Dividends 
B) Dilution caused by conversion 
C) Changing bond price 
D) All of the options are correct. 
A) Dividends 
B) Dilution caused by conversion 
C) Changing bond price 
D) All of the options are correct.

Question 11

Project finance is generally provided by

Accepted Answer

A) the U.S. government. 
B) foreign governments. 
C) international banks. 
A) the U.S. government. 
B) foreign governments. 
C) international banks.

Question 12

A Yankee bond is a bond

Accepted Answer

A) sold by a company from the United States. 
B) sold in the United States by a foreign firm. 
C) sold in the United States by a local company. 
D) sold in Japan by a company from some other country. 
A) sold by a company from the United States. 
B) sold in the United States by a foreign firm. 
C) sold in the United States by a local company. 
D) sold in Japan by a company from some other country.

Question 13

Explain the differences between a bond issued only in the United States and Eurobond issues.

Accepted Answer

There are two basic differences. First,

Question 14

A "foreign" bond is a bond

Accepted Answer

A) sold in the United States by a U.S. company. 
B) sold to investors in the local market but issued by a company from some other country. 
C) sold in Europe by a U.S. company. 
D) sold in Europe by a European company. 
A) sold in the United States by a U.S. company. 
B) sold to investors in the local market but issued by a company from some other country. 
C) sold in Europe by a U.S. company. 
D) sold in Europe by a European company.

Question 15

A zero-coupon bond is also called a(n)

Accepted Answer

A) income bond. 
B) original issue discount bond. 
C) pure discount bond. 
D) premium bond. 
A) income bond. 
B) original issue discount bond. 
C) pure discount bond. 
D) premium bond.

Question 16

An 8 percent debenture has five years of call protection and is thereafter callable at 100 percent, except that it is nonrefundable below interest cost. Which of the following statements is correct?

Accepted Answer

A) The debenture may be called any time during the next five years. 
B) The debenture may not be called during the next five years. 
C) The lender has the option to demand early repayment. 
D) The bond should be called when the yield on similar noncallable bonds falls to 8 percent. 
A) The debenture may be called any time during the next five years. 
B) The debenture may not be called during the next five years. 
C) The lender has the option to demand early repayment. 
D) The bond should be called when the yield on similar noncallable bonds falls to 8 percent.

Question 17

The holder of a $1,000 face value bond has the right to exchange the bond any time before maturity for shares of stock priced at $50 per share. The $50 is called the

Accepted Answer

A) conversion price. 
B) stated price. 
C) exercise price. 
D) striking price. 
A) conversion price. 
B) stated price. 
C) exercise price. 
D) striking price.

Question 18

Project finance is extensively used in developing countries to finance

Accepted Answer

A) power projects. 
B) telecommunications projects. 
C) transportation projects. 
D) All of the options are correct. 
A) power projects. 
B) telecommunications projects. 
C) transportation projects. 
D) All of the options are correct.

Question 19

Corporations often have the right to repurchase a debt issue prior to maturity at a fixed price. Such debt issues are said to be

Accepted Answer

A) indentured. 
B) protected. 
C) convertible. 
D) callable. 
A) indentured. 
B) protected. 
C) convertible. 
D) callable.

Question 20

The written agreement between a corporation and its bondholders contains a limitation on the dividends that the corporation can pay. This limitation is a

Accepted Answer

A) nonrecourse covenant. 
B) recourse covenant. 
C) positive covenant. 
D) negative covenant. 
A) nonrecourse covenant. 
B) recourse covenant. 
C) positive covenant. 
D) negative covenant.

Exam 24: The Many Different Kinds of Debt

The following are secured bonds except

Project finance requires a capital investment that can be clearly separated from the parent and offers tangible security to lenders.

LYONs are bonds that are I.callable; II.puttable; III.convertible; IV.zero-coupon

Explain the differences between warrants and convertibles.

Floating-rate bonds have adjustable rates to protect real rates of return against inflation. The rates paid are limited by

Long-term bonds that are unsecured obligations of a company are called

In general, which of the following statements is true?

Which of the following is the most sensible reason for issuing convertibles?

A puttable provision in a bond allows the

Which of the following situations increase the difficulty of valuing convertible bonds?

Project finance is generally provided by

A Yankee bond is a bond

Explain the differences between a bond issued only in the United States and Eurobond issues.

A "foreign" bond is a bond

A zero-coupon bond is also called a(n)

An 8 percent debenture has five years of call protection and is thereafter callable at 100 percent, except that it is nonrefundable below interest cost. Which of the following statements is correct?

The holder of a $1,000 face value bond has the right to exchange the bond any time before maturity for shares of stock priced at $50 per share. The $50 is called the

Project finance is extensively used in developing countries to finance

Corporations often have the right to repurchase a debt issue prior to maturity at a fixed price. Such debt issues are said to be

The written agreement between a corporation and its bondholders contains a limitation on the dividends that the corporation can pay. This limitation is a

Introduction to Corporate Finance

How to Calculate Present Values

Valuing Bonds

The Value of Common Stocks

Net Present Value and Other Investment Criteria

Making Investment Decisions With the Net Present Value Rule

Introduction to Risk and Return

Portfolio Theory and the Capital Asset Pricing Model

Risk and the Cost of Capital

Project Analysis

How to Ensure That Projects Truly Have Positive Npvs

Agency Problems and Investment

Efficient Markets and Behavioral Finance

An Overview of Corporate Financing

How Corporations Issue Securities

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Real Options

Credit Risk and the Value of Corporate Debt

Leasing

Managing Risk

Managing International Risks

Financial Analysis

Financial Planning

Working Capital Management

Mergers

Corporate Restructuring

Governance and Corporate Control Around the World

Filters