Question 1

Discuss the differences between publicly issued bonds and private placements.

Accepted Answer

Mainly, there are three differences. Fir

Question 2

The holders of ZZZ Corporation's bond with a face value of $1,000 can exchange that bond for 35 shares of stock. The stock is selling for $25.00. What is the conversion value of the bond?

Accepted Answer

A)  $1,000 
B)  $875 
C)  $1,200 
D)  None of the above 
A)  $1,000 
B)  $875 
C)  $1,200 
D)  None of the above

Question 3

A "samurai bond" is a bond:

Accepted Answer

A)  Sold by a company from Japan 
B)  Sold in the United States by a company from Japan 
C)  Sold in Japan by a local company 
D)  Sold in Japan by a company from some other country 
A)  Sold by a company from Japan 
B)  Sold in the United States by a company from Japan 
C)  Sold in Japan by a local company 
D)  Sold in Japan by a company from some other country

Question 4

The holder of a $1,000 face value bond can be exchanged any time for 25 shares of stock. Then the conversion price is:

Accepted Answer

A)  $40 
B)  $25 
C)  $100 
D)  None of the above. 
A)  $40 
B)  $25 
C)  $100 
D)  None of the above.

Question 5

Which of the following bonds is typically secured?

Accepted Answer

A)  Sinking fund debenture 
B)  Mortgage bond 
C)  Floating rate note 
D)  Eurobond 
E)  None of the above 
A)  Sinking fund debenture 
B)  Mortgage bond 
C)  Floating rate note 
D)  Eurobond 
E)  None of the above

Question 6

In general which of the following statement(s) 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 registered
IV. Eurobonds are bearer bonds

Accepted Answer

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

Question 7

The recovery rate on defaulting debt is the highest for the following type of debt:

Accepted Answer

A)  Bank debt 
B)  Senior secured bonds 
C)  Senior subordinated bonds 
D)  Junior subordinated bonds 
A)  Bank debt 
B)  Senior secured bonds 
C)  Senior subordinated bonds 
D)  Junior subordinated bonds

Question 8

Which of the following could be a 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 under-valued 
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 under-valued

Question 9

The holder of a $1,000 face value bond can exchange the bond any time for 25 shares of stock. Then the conversion ratio:

Accepted Answer

A)  is $40 
B)  is $25 
C)  is $100 
D)  depends on the current market price of the bond. 
A)  is $40 
B)  is $25 
C)  is $100 
D)  depends on the current market price of the bond.

Question 10

The bonds that are sold to local investors issued by a firm from another country are called:

Accepted Answer

A)  Private placement 
B)  Foreign bonds 
C)  Junk bonds 
D)  Investment grade bonds 
A)  Private placement 
B)  Foreign bonds 
C)  Junk bonds 
D)  Investment grade bonds

Question 11

Bond-warrant package has different effects on the firm's cash flow and capital structure than the convertible bond.

Accepted Answer

A) True 
 B)False

Question 12

Issuing convertible bond is better than issuing equity by a firm 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 stock price.
III. a convertible issue shows the management's willingness to take chance that the stock price will rise enough to lead to conversion also signals management's confidence in the future.

Accepted Answer

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

Question 13

The recovery rate on defaulting debt is the least for the following type of debt:

Accepted Answer

A)  Bank debt 
B)  Senior secured bonds 
C)  Senior subordinated bonds 
D)  Junior subordinated bonds 
A)  Bank debt 
B)  Senior secured bonds 
C)  Senior subordinated bonds 
D)  Junior subordinated bonds

Question 14

LIBOR means:

Accepted Answer

A)  London Interbank Offered Rate 
B)  London International Bank Offered Rate 
C)  Long-term International Bank Offered Rate 
D)  None of the above 
A)  London Interbank Offered Rate 
B)  London International Bank Offered Rate 
C)  Long-term International Bank Offered Rate 
D)  None of the above

Question 15

What are the three elements of convertible bond value?

Accepted Answer

The value of a convertible bond is deter

Question 16

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

Accepted Answer

A)  A non-recourse covenant 
B)  A recourse covenant 
C)  A positive covenant 
D)  A negative covenant 
A)  A non-recourse covenant 
B)  A recourse covenant 
C)  A positive covenant 
D)  A negative covenant

Question 17

According to SEC Rule 144A:

Accepted Answer

A)  Bonds issued through private placements can be bought and sold by institutional investors 
B)  SEC registration is not needed for privately placed bonds 
C)  SEC registration is required of all securities issued in the U.S.A. 
D)  (
A)  and (
B)  only 
A)  Bonds issued through private placements can be bought and sold by institutional investors 
B)  SEC registration is not needed for privately placed bonds 
C)  SEC registration is required of all securities issued in the U.S.A. 
D)  (
A)  and (
B)  only

Question 18

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

Accepted Answer

There are two basic differences. First,

Question 19

Briefly explain the term "Conversion premium."

Accepted Answer

Conversion premium is the difference bet

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 24: The Many Different Kinds of Debt

Discuss the differences between publicly issued bonds and private placements.

The holders of ZZZ Corporation's bond with a face value of $1,000 can exchange that bond for 35 shares of stock. The stock is selling for $25.00. What is the conversion value of the bond?

A "samurai bond" is a bond:

The holder of a $1,000 face value bond can be exchanged any time for 25 shares of stock. Then the conversion price is:

Which of the following bonds is typically secured?

In general which of the following statement(s) 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 registered IV. Eurobonds are bearer bonds

The recovery rate on defaulting debt is the highest for the following type of debt:

Which of the following could be a sensible reason for issuing convertibles?

The holder of a $1,000 face value bond can exchange the bond any time for 25 shares of stock. Then the conversion ratio:

The bonds that are sold to local investors issued by a firm from another country are called:

Bond-warrant package has different effects on the firm's cash flow and capital structure than the convertible bond.

The recovery rate on defaulting debt is the least for the following type of debt:

LIBOR means:

What are the three elements of convertible bond value?

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

According to SEC Rule 144A:

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

Briefly explain the term "Conversion premium."

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

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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