Question 1

In the financial statement of the firm, puts and calls

Accepted Answer

A)  influence the capital structure decision. 
B)  determine cash management policy. 
C)  affect bond quality. 
D)  have no influence. 
A)  influence the capital structure decision. 
B)  determine cash management policy. 
C)  affect bond quality. 
D)  have no influence.

Question 2

When an interest-rate swap is used to hedge a financial risk on a company's balance sheet, thecompany will have

Accepted Answer

A)  a short-term liability and a short-term asset with fixed values even if interest rates vary 
B)  a short-term liability and a long-term asset with offsetting changes in value when interest rates vary 
C)  a long-term liability and a short-term asset with fixed values even if interest rates vary 
D)  a long-term liability and a long-term asset with offsetting changes in value when interest rates vary 
A)  a short-term liability and a short-term asset with fixed values even if interest rates vary 
B)  a short-term liability and a long-term asset with offsetting changes in value when interest rates vary 
C)  a long-term liability and a short-term asset with fixed values even if interest rates vary 
D)  a long-term liability and a long-term asset with offsetting changes in value when interest rates vary

Question 3

A  ___________gives the holder an option to purchase a certain number of shares of common stock at a specified price over a certain period of time.

Accepted Answer

A)  repurchase agreement 
B)  put option 
C)  convertible bond 
D)  stock-purchase warrant 
A)  repurchase agreement 
B)  put option 
C)  convertible bond 
D)  stock-purchase warrant

Question 4

A derivative that gives the holder the right, but not the obligation to sell the underlying security iscalled a ___________

Accepted Answer

A)  put 
B)  right 
C)  call 
D)  warrant 
A)  put 
B)  right 
C)  call 
D)  warrant

Question 5

A security that is neither debt nor equity but derives its value from an underlying asset that is often another security is called

Accepted Answer

A)  convertible security. 
B)  hybrid security. 
C)  derivative security. 
D)  none of the above. 
A)  convertible security. 
B)  hybrid security. 
C)  derivative security. 
D)  none of the above.

Question 6

The market value of a warrant is generally ___________the theoretical value of the warrant.

Accepted Answer

A)  not related to 
B)  above 
C)  equal to 
D)  below 
A)  not related to 
B)  above 
C)  equal to 
D)  below

Question 7

The basic characteristics of warrants include all of the following EXCEPT it

Accepted Answer

A)  has an exercise period shorter than one month. 
B)  is detachable. 
C)  lowers the required interest rate. 
D)  acts as a sweetener in financing. 
A)  has an exercise period shorter than one month. 
B)  is detachable. 
C)  lowers the required interest rate. 
D)  acts as a sweetener in financing.

Question 8

When a call is made on a convertible security, the holder of the security will most likely

Accepted Answer

A)  sell the security in the secondary market. 
B)  convert the security into common stock. 
C)  not take any action. 
D)  allow the call to be exercised and accept the call premium. 
A)  sell the security in the secondary market. 
B)  convert the security into common stock. 
C)  not take any action. 
D)  allow the call to be exercised and accept the call premium.

Question 9

A firm has an outstanding 15-year convertible bond issue with a $1,000 par value and a stated annual interest rate of seven percent. The bond is convertible into 50 shares of common stock which has a current market price of $15. A straight bond could have been sold with a 10 percent stated interest rate. The market value of the bond is  ___________at the minimum.

Accepted Answer

A)  $1,250 
B)  $750 
C)  $1,000 
D)  $772 
A)  $1,250 
B)  $750 
C)  $1,000 
D)  $772

Question 10

A firm has outstanding warrants that are exercisable at $53 per share and entitle holders topurchase two shares of common stock. The common stock is currently selling for $55 per share. Thetheoretical value of the warrant is ___________ .

Accepted Answer

A)  $1 
B)  $3 
C)  $2 
D)  $4 
A)  $1 
B)  $3 
C)  $2 
D)  $4

Question 11

The companies involved in a swap are called

Accepted Answer

A)  counterparties 
B)  dealers 
C)  interest swappers 
D)  transactors 
A)  counterparties 
B)  dealers 
C)  interest swappers 
D)  transactors

Question 12

In Canada, all option contracts are issued, guaranteed, and cleared by the

Accepted Answer

A)  Canada Customs and Revenue Agency. 
B)  Bank of Canada. 
C)  Canadian Institute of Chartered Accountants. 
D)  Canadian Derivatives Clearing Corporation. 
A)  Canada Customs and Revenue Agency. 
B)  Bank of Canada. 
C)  Canadian Institute of Chartered Accountants. 
D)  Canadian Derivatives Clearing Corporation.

Question 13

Derivatives are used by corporations as a useful tool for managing certain aspects of the firm's risk.

Accepted Answer

A) True 
 B)False

Question 14

A firm has an outstanding 15-year convertible bond issue with a $1,000 par value and a stated annual interest rate of seven percent. The bond is convertible into 50 shares of common stock which has a current market price of $25. A straight bond could have been sold with a 10 percent stated interest rate. The straight value of the bond is ___________ .

Accepted Answer

A)  $1,328 
B)  $772 
C)  $1,250 
D)  $1,000 
A)  $1,328 
B)  $772 
C)  $1,250 
D)  $1,000

Question 15

A firm currently has outstanding a 9 percent, $1,000 convertible bond. The bond is convertible into100 shares of common stock at a conversion price of $10 per share and callable at $1,090. Thecurrent market price of the firm's stock is $12 per share. If the bond is called, the bond holder will most likely

Accepted Answer

A)  convert the bond into stock realizing only par value. 
B)  do nothing and wait until the stock price goes up further. 
C)  convert the bond into stock realizing $200 over par value. 
D)  allow the call to be exercised realizing $90 over par value. 
A)  convert the bond into stock realizing only par value. 
B)  do nothing and wait until the stock price goes up further. 
C)  convert the bond into stock realizing $200 over par value. 
D)  allow the call to be exercised realizing $90 over par value.

Question 16

Convertible bonds normally have____________to permit the issuer to retire or encourage conversion.

Accepted Answer

A)  a put option 
B)  a stock purchase warrant 
C)  a striking price 
D)  a call feature 
A)  a put option 
B)  a stock purchase warrant 
C)  a striking price 
D)  a call feature

Question 17

Which of the following is one of the main factors that determine the quoted fixed rates for swaps?

Accepted Answer

A)  The size of the notional amount 
B)  The counterparties' default risk 
C)  The time of the taxation year the swap deal is entered into 
D)  The swap dealers' ability to add large spreads 
A)  The size of the notional amount 
B)  The counterparties' default risk 
C)  The time of the taxation year the swap deal is entered into 
D)  The swap dealers' ability to add large spreads

Question 18

A form of debt or equity financing that possesses characteristics of both debt and equity financing is called

Accepted Answer

A)  derivative security. 
B)  convertible security. 
C)  hybrid security. 
D)  none of the above. 
A)  derivative security. 
B)  convertible security. 
C)  hybrid security. 
D)  none of the above.

Question 19

The call price of the security generally exceeds the security's par value by an amount equal to

Accepted Answer

A)  the market premium. 
B)  the market value of one share of common stock. 
C)  one year's stated interest. 
D)  the straight bond value. 
A)  the market premium. 
B)  the market value of one share of common stock. 
C)  one year's stated interest. 
D)  the straight bond value.

Question 20

The swap that has the simplest structure is generally known as a

Accepted Answer

A)  simple swap 
B)  vanilla swap 
C)  straight swap 
D)  plain swap 
A)  simple swap 
B)  vanilla swap 
C)  straight swap 
D)  plain swap

In the financial statement of the firm, puts and calls

When an interest-rate swap is used to hedge a financial risk on a company's balance sheet, thecompany will have

A ___________gives the holder an option to purchase a certain number of shares of common stock at a specified price over a certain period of time.

A derivative that gives the holder the right, but not the obligation to sell the underlying security iscalled a ___________

A security that is neither debt nor equity but derives its value from an underlying asset that is often another security is called

The market value of a warrant is generally ___________the theoretical value of the warrant.

The basic characteristics of warrants include all of the following EXCEPT it

When a call is made on a convertible security, the holder of the security will most likely

A firm has outstanding warrants that are exercisable at $53 per share and entitle holders topurchase two shares of common stock. The common stock is currently selling for $55 per share. Thetheoretical value of the warrant is ___________ .

The companies involved in a swap are called

In Canada, all option contracts are issued, guaranteed, and cleared by the

Derivatives are used by corporations as a useful tool for managing certain aspects of the firm's risk.

Convertible bonds normally have____________to permit the issuer to retire or encourage conversion.

Which of the following is one of the main factors that determine the quoted fixed rates for swaps?

A form of debt or equity financing that possesses characteristics of both debt and equity financing is called

The call price of the security generally exceeds the security's par value by an amount equal to

The swap that has the simplest structure is generally known as a

Overview of Corporate Finance

Financial Statements, Cash Flows, and Taxes

Financial Statement Analysis

Financial Planning and Forecasting

Financial Markets, Institutions, and Securities

Time Value of Money

Risk and Return

Valuation of Financial Securities

The Cost of Capital

Leverage and Capital Structure

Dividend Policy

Capital Budgeting: Principles and Techniques

Dealing With Project Risk and Other Topics in Capital Budgeting

Working Capital and Management of Current Assets

Management of Current Liabilities

Lease Financing: Concepts and Techniques

Mergers and Acquisitions, and Business Failure

International Corporate Finance

Filters

Exam 17: Corporate Securities, Derivatives, and Swaps

In the financial statement of the firm, puts and calls

When an interest-rate swap is used to hedge a financial risk on a company's balance sheet, thecompany will have

A ___________gives the holder an option to purchase a certain number of shares of common stock at a specified price over a certain period of time.

A derivative that gives the holder the right, but not the obligation to sell the underlying security iscalled a ___________

A security that is neither debt nor equity but derives its value from an underlying asset that is often another security is called

The market value of a warrant is generally ___________the theoretical value of the warrant.

The basic characteristics of warrants include all of the following EXCEPT it

When a call is made on a convertible security, the holder of the security will most likely

A firm has outstanding warrants that are exercisable at $53 per share and entitle holders topurchase two shares of common stock. The common stock is currently selling for $55 per share. Thetheoretical value of the warrant is ___________ .

The companies involved in a swap are called

In Canada, all option contracts are issued, guaranteed, and cleared by the

Derivatives are used by corporations as a useful tool for managing certain aspects of the firm's risk.

Convertible bonds normally have____________to permit the issuer to retire or encourage conversion.

Which of the following is one of the main factors that determine the quoted fixed rates for swaps?

A form of debt or equity financing that possesses characteristics of both debt and equity financing is called

The call price of the security generally exceeds the security's par value by an amount equal to

The swap that has the simplest structure is generally known as a

Overview of Corporate Finance

Financial Statements, Cash Flows, and Taxes

Financial Statement Analysis

Financial Planning and Forecasting

Financial Markets, Institutions, and Securities

Time Value of Money

Risk and Return

Valuation of Financial Securities

The Cost of Capital

Leverage and Capital Structure

Dividend Policy

Capital Budgeting: Principles and Techniques

Dealing With Project Risk and Other Topics in Capital Budgeting

Working Capital and Management of Current Assets

Management of Current Liabilities

Lease Financing: Concepts and Techniques

Mergers and Acquisitions, and Business Failure

International Corporate Finance

Filters