Question 1

The following are secured bonds except:

Accepted Answer

A)  Mortgage bonds 
B)  Debentures 
C)  Collateral trust bonds 
D)  Equipment trust certificate 
A)  Mortgage bonds 
B)  Debentures 
C)  Collateral trust bonds 
D)  Equipment trust certificate B

Question 2

Which of the following is not an example of an affirmative (positive) covenant?

Accepted Answer

A)  Requirement to maintain a minimum level of working capital 
B)  Requirement to furnish bondholders with a copy of the firm's annual accounts 
C)  Requirement to limit dividends to net income 
D)  Requirement to maintain a minimum level of net worth 
A)  Requirement to maintain a minimum level of working capital 
B)  Requirement to furnish bondholders with a copy of the firm's annual accounts 
C)  Requirement to limit dividends to net income 
D)  Requirement to maintain a minimum level of net worth C

Question 3

The following are some of the complications associated with call provisions of bonds:
I. the firm may be prevented from calling bond because of non-refunding clause from issuing new debt.
II. the call premium is a tax-deductible expense for the firm but is taxed as capital gains to bondholders.
III. there may be other tax consequences to both the firm and the bondholders from replacing a low-coupon bond with a higher-coupon bond.
IV. there are costs and delays associated with calling and reissuing debt.

Accepted Answer

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

Question 4

Warrants are sometimes issued:
I. With private placement bonds.
II. To investment bankers as compensation.
III. To creditors in the event of bankruptcy.
IV. To common stock holders.

Accepted Answer

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

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Briefly explain the term "conversion ratio."

Accepted Answer

The number of shares received

Question 7

The difference between the price of callable and non-callable bonds is greatest when bond prices are lowest.

Accepted Answer

A) True 
 B)False

Question 8

In case of Eurobond issues, the entity that carries out similar functions of a bond trustee is called:

Accepted Answer

A)  a bond trustee 
B)  an international bank 
C)  underwriter 
D)  a fiscal agent 
A)  a bond trustee 
B)  an international bank 
C)  underwriter 
D)  a fiscal agent

Question 9

Many times warrants may be issued on their own and do not have to be issued in conjunction with other securities.

Accepted Answer

A) True 
 B)False

Question 10

The Alfa Co. has a 6% coupon bond outstanding that pays semiannual interest. Calculate the semi-annual interest payment:

Accepted Answer

A)  $60 
B)  $30 
C)  $10 
D)  None of the above 
A)  $60 
B)  $30 
C)  $10 
D)  None of the above

Question 11

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 12

What are LYONs?

Accepted Answer

LYONs (Liquid yield option not

Question 13

Loan guarantees are valuable methods for propping up the value of debt without up front cash.

Accepted Answer

A) True 
 B)False

Question 14

The largest market for foreign bonds is

Accepted Answer

A)  U.S.A 
B)  Japan 
C)  Switzerland 
D)  none of the above 
A)  U.S.A 
B)  Japan 
C)  Switzerland 
D)  none of the above

Question 15

The following are problems specific to valuation of convertible bonds:

Accepted Answer

A)  dividends 
B)  dilution 
C)  changing bond value| 
D)  all of the above 
A)  dividends 
B)  dilution 
C)  changing bond value| 
D)  all of the above

Question 16

Recently a high proportion of international bond issues are denominated in

Accepted Answer

A)  U.S. dollars 
B)  British pounds 
C)  Yens 
D)  Euros 
A)  U.S. dollars 
B)  British pounds 
C)  Yens 
D)  Euros

Question 17

What are reverse floaters?

Accepted Answer

Reverse floaters are floating-

Question 18

The following are various types of secured debt:
I. Mortgage bonds
II. Collateral trust bonds
III. Equipment trust certificate
IV. Debentures

Accepted Answer

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

Question 19

Briefly explain the restrictive covenants in a bond indenture.

Accepted Answer

The restrictive covenants, also called p

Question 20

Any bond that is issued at a discount is known as:

Accepted Answer

A)  Pure discount bond 
B)  Zero-coupon bond 
C)  Original issue discount bond 
D)  Premium bond 
A)  Pure discount bond 
B)  Zero-coupon bond 
C)  Original issue discount bond 
D)  Premium bond

Exam 24: The Many Different Kinds of Debt

The following are secured bonds except:

Which of the following is not an example of an affirmative (positive) covenant?

Warrants are sometimes issued: I. With private placement bonds. II. To investment bankers as compensation. III. To creditors in the event of bankruptcy. IV. To common stock holders.

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

Briefly explain the term "conversion ratio."

The difference between the price of callable and non-callable bonds is greatest when bond prices are lowest.

In case of Eurobond issues, the entity that carries out similar functions of a bond trustee is called:

Many times warrants may be issued on their own and do not have to be issued in conjunction with other securities.

The Alfa Co. has a 6% coupon bond outstanding that pays semiannual interest. Calculate the semi-annual interest payment:

Long-term Bonds that are unsecured obligations of a company are called:

What are LYONs?

Loan guarantees are valuable methods for propping up the value of debt without up front cash.

The largest market for foreign bonds is

The following are problems specific to valuation of convertible bonds:

Recently a high proportion of international bond issues are denominated in

What are reverse floaters?

The following are various types of secured debt: I. Mortgage bonds II. Collateral trust bonds III. Equipment trust certificate IV. Debentures

Briefly explain the restrictive covenants in a bond indenture.

Any bond that is issued at a discount is known as:

Goals and Governance of the Firm

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

Investment, Strategy, and Economic Rents

Agency Problems, Compensation, and Performance Measurement

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

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