Question 1

Which of the following is a type of call provision?

Accepted Answer

A)  sinking fund 
B)  balloon payment 
C)  indenture 
D)  conversion feature 
A)  sinking fund 
B)  balloon payment 
C)  indenture 
D)  conversion feature

Question 2

A company issues a 20-year, callable bond at par with 6% annual coupon payments. The bond canbe called at par in three years or any time after that on a coupon payment date. The call price is $110 per $100 of face value. What is the yield to call?

Accepted Answer

A)  4% 
B)  12% 
C)  9% 
D)  6% 
A)  4% 
B)  12% 
C)  9% 
D)  6%

Question 3

A firm issues $160 million in straight bonds at par and a coupon rate of 8.5%. The firm pays fees of 2% on the face value of the bonds. The net amount of funds that the debt issue will provide for the firm is closest to which of the following?

Accepted Answer

A)  $157 million 
B)  $146 million 
C)  $160 million 
D)  $154 million 
A)  $157 million 
B)  $146 million 
C)  $160 million 
D)  $154 million

Question 4

Which of the following statements is FALSE?

Accepted Answer

A)  If the issuer fails to live up to any covenant, the issuer goes into bankruptcy. 
B)  The stronger the covenants in the bond contract, the less likely the issuer will default on the bond, and so the lower the interest rate investors will require to buy the bond. 
C)  Bond agreements often contain covenants that restrict the ability of management to pay dividends. 
D)  Covenants are restrictive clauses in a bond contract that limit the issuer from taking actions that may undercut its ability to repay the bonds. 
A)  If the issuer fails to live up to any covenant, the issuer goes into bankruptcy. 
B)  The stronger the covenants in the bond contract, the less likely the issuer will default on the bond, and so the lower the interest rate investors will require to buy the bond. 
C)  Bond agreements often contain covenants that restrict the ability of management to pay dividends. 
D)  Covenants are restrictive clauses in a bond contract that limit the issuer from taking actions that may undercut its ability to repay the bonds.

Question 5

$$\begin{array} { l l } 
\text { Couporc } & 0 \% \
\text { Conversion Ratio } & 20 \% \text { shanes per } \$ 1000 \text { principol amount } \
\text { Call Dates } & \text { 1 July } 2012 \
\text { Call Prick: } & \text { Par } \
\text { MSaturity: } & \text { 1 July } 2019
\end{array}$$ A firm issues the convertible debt shown above. The share price of this company on 1 July 2012 is $4.95. If the bonds are called on this date, which of the following is the action most likely to be taken by a holder of a bond of face value $10,000?

Accepted Answer

A)  Accept the call price and receive $10,000. 
B)  Convert the bond and accept shares with a value of $10,000. 
C)  Convert the bond and accept shares with a value of $10,128.00. 
D)  Convert the bond and accept shares with a value of $10,246.50. 
A)  Accept the call price and receive $10,000. 
B)  Convert the bond and accept shares with a value of $10,000. 
C)  Convert the bond and accept shares with a value of $10,128.00. 
D)  Convert the bond and accept shares with a value of $10,246.50.

Question 6

Why do the issuers of bonds not seek to minimise the strength and number of covenants in a bond agreement?

Accepted Answer

A)  Covenants favor the equity holders that managers work for. 
B)  Covenants lower the interest rate investors will require to buy the bond. 
C)  Covenants force the company to renegotiate the terms of the bond if they are broken. 
D)  Covenants can increase the flexibility of the company issuing the bond. 
A)  Covenants favor the equity holders that managers work for. 
B)  Covenants lower the interest rate investors will require to buy the bond. 
C)  Covenants force the company to renegotiate the terms of the bond if they are broken. 
D)  Covenants can increase the flexibility of the company issuing the bond.

Question 7

In which of the following situations does the value of a convertible bond exceed the value of straight debt or equity by the greatest amount?

Accepted Answer

A)  when the share price is much lower than the conversion price 
B)  when the share price is close to the conversion price 
C)  when the share price is high 
D)  when the share price is low 
A)  when the share price is much lower than the conversion price 
B)  when the share price is close to the conversion price 
C)  when the share price is high 
D)  when the share price is low

Question 8

Bonds issued by a foreign company in a local market, intended for local investors, and denominated in the local currency are known as

Accepted Answer

A)  foreign bonds. 
B)  domestic bonds. 
C)  kangaroo bonds. 
D)  Eurobonds. 
A)  foreign bonds. 
B)  domestic bonds. 
C)  kangaroo bonds. 
D)  Eurobonds.

Question 9

A company issues a callable (at par) five-year, 7% coupon bond with annual coupon payments. The bond can be called at par in one year after release or any time after that on a coupon payment date. On release, it has a price of $110 per $100 of face value. What is the yield to maturity of this bond when it is released?

Accepted Answer

A)  2.80% 
B)  1.40% 
C)  5.66% 
D)  4.71% 
A)  2.80% 
B)  1.40% 
C)  5.66% 
D)  4.71%

Question 10

What is yield to maturity?

Accepted Answer

Yield to maturity is the annua

Question 11

A company issues a callable (at par) 20-year, 5% coupon bond with annual coupon payments. The bond can be called at par in one year after release or any time after that on a coupon payment date. On release, it has a price of $102 per $100 of face value. What is the yield to worst of this bond when it is released?

Accepted Answer

A)  4.84% 
B)  2.94% 
C)  5.60% 
D)  6.66% 
A)  4.84% 
B)  2.94% 
C)  5.60% 
D)  6.66%

Question 12

Which of the following statements regarding sinking fund provisions is FALSE?

Accepted Answer

A)  Sinking fund provisions usually specify a minimum rate at which the issuer must contribute to the fund. 
B)  With a sinking fund, instead of repaying the entire principal balance on the maturity date, the company makes regular payments into a sinking fund administered by a trustee over the life of the bond. 
C)  With a sinking fund, if a bond is trading at below its face value, because the bonds are repurchased at par, the decision as to which bonds to repurchase is made by lottery. 
D)  Because the sinking fund allows the issuer to repurchase the bonds at par, the option to accelerate the payments is another form of call provision. 
A)  Sinking fund provisions usually specify a minimum rate at which the issuer must contribute to the fund. 
B)  With a sinking fund, instead of repaying the entire principal balance on the maturity date, the company makes regular payments into a sinking fund administered by a trustee over the life of the bond. 
C)  With a sinking fund, if a bond is trading at below its face value, because the bonds are repurchased at par, the decision as to which bonds to repurchase is made by lottery. 
D)  Because the sinking fund allows the issuer to repurchase the bonds at par, the option to accelerate the payments is another form of call provision.

Question 13

Coupon:Conversion Ratio: 78 shares per $1000 principal amount Call Date: 1 July 2012 Maturity: 1 July 2019 A firm issues the convertible debt shown above. The price of stock in this company on 1 July 2012 is $14.40. What is the minimum call price that would make a bondholder prefer to accept the call rather than convert?

Accepted Answer

A)  par plus 6.66% 
B)  par plus 7.50% 
C)  par plus 12.32% 
D)  par plus 8.46% 
A)  par plus 6.66% 
B)  par plus 7.50% 
C)  par plus 12.32% 
D)  par plus 8.46%

Question 14

Bond covenants tend to increase a bond issuer's borrowing costs?

Accepted Answer

A) True 
 B)False

Question 15

Which of the following terms best describes a loan where a larger line of credit or lower interest rate has been obtained by providing collateral to back that loan?

Accepted Answer

A)  a term loan 
B)  a private placement 
C)  an asset-backed line of credit 
D)  a revolving line of credit 
A)  a term loan 
B)  a private placement 
C)  an asset-backed line of credit 
D)  a revolving line of credit

Question 16

A company issues a callable (at par) ten-year, 6% coupon bond with annual coupon payments. The bond can be called at par in one year after release or any time after that on a coupon payment date. On release, it has a price of $104 per $100 of face value. What is the yield to maturity of this bond when it is released?

Accepted Answer

A)  5.47% 
B)  0.60% 
C)  1.92% 
D)  4.00% 
A)  5.47% 
B)  0.60% 
C)  1.92% 
D)  4.00%

Question 17

Which of the following is NOT an advantage of private debt over public debt?

Accepted Answer

A)  It does not dilute the ownership of the firm. 
B)  It need not be registered with ASIC. 
C)  It has to have interest and principal payments made upon it. 
D)  It is liquid. 
A)  It does not dilute the ownership of the firm. 
B)  It need not be registered with ASIC. 
C)  It has to have interest and principal payments made upon it. 
D)  It is liquid.

Question 18

Which of the following statements is FALSE?

Accepted Answer

A)  Eurobonds are international bonds that are denominated in the local European currency of the country in which they are issued. 
B)  Global bonds combine the features of domestic, foreign, and Eurobonds, and are offered for sale in several different markets simultaneously. 
C)  A term loan is a bank loan that lasts for a specific term. 
D)  In a leveraged buyout (LBO), a group of private investors purchases all the equity of a public corporation. 
A)  Eurobonds are international bonds that are denominated in the local European currency of the country in which they are issued. 
B)  Global bonds combine the features of domestic, foreign, and Eurobonds, and are offered for sale in several different markets simultaneously. 
C)  A term loan is a bank loan that lasts for a specific term. 
D)  In a leveraged buyout (LBO), a group of private investors purchases all the equity of a public corporation.

Question 19

A bond has a face value of $10,000 and a conversion ratio of 560. The stock is currently trading at $16.30. What is the conversion price?

Accepted Answer

A)  $6.13 
B)  $56.00 
C)  $16.30 
D)  $17.86 
A)  $6.13 
B)  $56.00 
C)  $16.30 
D)  $17.86

Question 20

Tompkinson's PLC., a British company, issues a bond in Australian dollars in Australia which is intended for Australian investors. Which of the following best describes this bond?

Accepted Answer

A)  a kangaroo bond 
B)  a global bond 
C)  a foreign bond 
D)  a Eurobond 
A)  a kangaroo bond 
B)  a global bond 
C)  a foreign bond 
D)  a Eurobond

Which of the following is a type of call provision?

A company issues a 20-year, callable bond at par with 6% annual coupon payments. The bond canbe called at par in three years or any time after that on a coupon payment date. The call price is $110 per $100 of face value. What is the yield to call?

A firm issues $160 million in straight bonds at par and a coupon rate of 8.5%. The firm pays fees of 2% on the face value of the bonds. The net amount of funds that the debt issue will provide for the firm is closest to which of the following?

Which of the following statements is FALSE?

Why do the issuers of bonds not seek to minimise the strength and number of covenants in a bond agreement?

In which of the following situations does the value of a convertible bond exceed the value of straight debt or equity by the greatest amount?

Bonds issued by a foreign company in a local market, intended for local investors, and denominated in the local currency are known as

What is yield to maturity?

Which of the following statements regarding sinking fund provisions is FALSE?

Bond covenants tend to increase a bond issuer's borrowing costs?

Which of the following terms best describes a loan where a larger line of credit or lower interest rate has been obtained by providing collateral to back that loan?

Which of the following is NOT an advantage of private debt over public debt?

Which of the following statements is FALSE?

A bond has a face value of $10,000 and a conversion ratio of 560. The stock is currently trading at $16.30. What is the conversion price?

Tompkinson's PLC., a British company, issues a bond in Australian dollars in Australia which is intended for Australian investors. Which of the following best describes this bond?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bond Valuation

Share Valuation: the Dividend-Discount Model

Investment Decision Rules

Fundamentals of Capital Budgeting

Share Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Capital

Capital Structure

Payout Policy

Filters

Exam 15: Debt Financing

Which of the following is a type of call provision?

A company issues a 20-year, callable bond at par with 6% annual coupon payments. The bond canbe called at par in three years or any time after that on a coupon payment date. The call price is $110 per $100 of face value. What is the yield to call?

A firm issues $160 million in straight bonds at par and a coupon rate of 8.5%. The firm pays fees of 2% on the face value of the bonds. The net amount of funds that the debt issue will provide for the firm is closest to which of the following?

Which of the following statements is FALSE?

Why do the issuers of bonds not seek to minimise the strength and number of covenants in a bond agreement?

In which of the following situations does the value of a convertible bond exceed the value of straight debt or equity by the greatest amount?

Bonds issued by a foreign company in a local market, intended for local investors, and denominated in the local currency are known as

What is yield to maturity?

Which of the following statements regarding sinking fund provisions is FALSE?

Bond covenants tend to increase a bond issuer's borrowing costs?

Which of the following terms best describes a loan where a larger line of credit or lower interest rate has been obtained by providing collateral to back that loan?

Which of the following is NOT an advantage of private debt over public debt?

Which of the following statements is FALSE?

A bond has a face value of $10,000 and a conversion ratio of 560. The stock is currently trading at $16.30. What is the conversion price?

Tompkinson's PLC., a British company, issues a bond in Australian dollars in Australia which is intended for Australian investors. Which of the following best describes this bond?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bond Valuation

Share Valuation: the Dividend-Discount Model

Investment Decision Rules

Fundamentals of Capital Budgeting

Share Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Capital

Capital Structure

Payout Policy

Filters