Exam 24: The Many Different Kinds of Debt

A "samurai bond" is a bond

Sinking funds reduce the average life of a bond and thereby reduce the risk of a default.

Which of the following bonds is typically not secured?

Even though many bonds have deferred sinking funds, the sinking fund has the following effects on bondholders: I.provides extra protection to bondholders as both an early warning system and perhaps some collateral cash; II.provides an option to the firm to buy bonds at the lower of market or face value; III.puts the bondholders at added risk due to potential inability to meet sinking fund payments

Two major differences between a warrant and a call option are I.warrants are contracts outside of the firm while options are within the firm; II.warrants have long maturities while options are usually short maturities; III.warrant exercise dilutes the value of equity while options exercise usually does not

Government loan guarantees are a risk-free and costless means for helping struggling firms.

Briefly explain the term conversion ratio.

The owner of a convertible bond owns both a straight bond and a call option.

The exercise of warrants creates new shares which

What are reverse floaters?

A firm may prefer to issue a convertible bond, as opposed to issuing equity, because I.a convertible issue sends a better signal to investors than an issue of common stock; II.an announcement of a stock issue generates worries of overvaluation and usually depresses the stock price; III.a convertible issue shows the management's willingness to take a chance that the stock price will rise enough to lead to conversion and also signals management's confidence in the future

In general, which of the following statements is (are)true? I.Bonds issued in the United States are registered. II.Bonds issued in the United States are bearer bonds. III.Eurobonds are normally issued in a major currency, e.g., $US, euro, or yen. IV.Eurobonds are normally issued in the local currency.

Convertible bonds can also have a call feature.

The holders of ZZZ Corporation's bonds with a face value of $1,000 can exchange that bond for 35 shares of stock. The stock is selling for $25. What is the conversion price?

A loan guarantee provided by the government on a corporate bond acts like what kind of derivative security for the investor?

The largest market for foreign bonds is

Which of the following statements about convertible bonds is true?

Affirmative covenants impose certain duties on the company.

Reverse floaters are floating rate bonds that pay a higher rate of interest when other interest rates fall and a lower rate when other rates rise.

The call policy that maximizes shareholder wealth is to call a bond issue when