Question 1

A sinking fund is useful to a corporation because:

Accepted Answer

A)  The corporation does not have to worry about paying the bondholders 
B)  It provides the corporation with the option to buy the bonds back at the lower of face value or market price 
C)  The payments to the sinking fund are not necessary when the firm is in financial difficulty 
D)  They are simple and easy to monitor 
A)  The corporation does not have to worry about paying the bondholders 
B)  It provides the corporation with the option to buy the bonds back at the lower of face value or market price 
C)  The payments to the sinking fund are not necessary when the firm is in financial difficulty 
D)  They are simple and easy to monitor

Question 2

A bond-warrant package:

Accepted Answer

A)  Always increases the risk of the common equity. 
B)  Always decreases the risk of the common equity. 
C)  Could either increase or decrease the risk of the common equity. 
D)  All of the above. 
A)  Always increases the risk of the common equity. 
B)  Always decreases the risk of the common equity. 
C)  Could either increase or decrease the risk of the common equity. 
D)  All of the above.

Question 3

The term "Yankee bond" refers to any bond sold in the United States.

Accepted Answer

A) True 
 B)False

Question 4

Project finance is generally provided by:

Accepted Answer

A)  US Government 
B)  Foreign governments 
C)  International banks 
D)  World bank 
A)  US Government 
B)  Foreign governments 
C)  International banks 
D)  World bank

Question 5

In general which of the following statements is true?

Accepted Answer

A)  Bonds issued in the United States pay interest annually, while bonds issued in other countries pay interest semiannually 
B)  Bonds issued in the United States and other countries pay interest semi-annually 
C)  Bonds issued in the United States and other countries pay interest annually 
D)  Bonds issued in the United States pay interest semi-annually, while bonds issued in other countries pay interest annually 
A)  Bonds issued in the United States pay interest annually, while bonds issued in other countries pay interest semiannually 
B)  Bonds issued in the United States and other countries pay interest semi-annually 
C)  Bonds issued in the United States and other countries pay interest annually 
D)  Bonds issued in the United States pay interest semi-annually, while bonds issued in other countries pay interest annually

Question 6

Bonds issued in the United States are usually registered.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following would not generally be included in the typical bond indenture? I) The basic terms of the bond
II) Details of the protective covenants
III) Sinking fund arrangements
IV) Call provisions

Accepted Answer

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

Question 8

A type of bond that has the advantage of secrecy of ownership, but has the disadvantage of ownership not recorded by the registrar is:

Accepted Answer

A)  A registered bond 
B)  A premium bond 
C)  A par bond 
D)  A bearer bond 
A)  A registered bond 
B)  A premium bond 
C)  A par bond 
D)  A bearer bond

Question 9

A "yankee bond" is a bond

Accepted Answer

A)  Sold by a company from the U.S.A. 
B)  Sold in the United States by a foreign firm 
C)  Sold in the U.S.A. by a local company 
D)  Sold in Japan by a company from some other country 
A)  Sold by a company from the U.S.A. 
B)  Sold in the United States by a foreign firm 
C)  Sold in the U.S.A. by a local company 
D)  Sold in Japan by a company from some other country

Question 10

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 price?

Accepted Answer

A)  $35 
B)  $7.70 
C)  $28.57 
D)  None of the above 
A)  $35 
B)  $7.70 
C)  $28.57 
D)  None of the above

Question 11

Very large bond issues that are marketed both internationally as well as in individual domestic markets are called:

Accepted Answer

A)  Eurobonds 
B)  Foreign bonds 
C)  Global bonds 
D)  none of the above 
A)  Eurobonds 
B)  Foreign bonds 
C)  Global bonds 
D)  none of the above

Question 12

Project finance requires a capital investment that can be clearly separated from the parent that offers tangible security to lenders.

Accepted Answer

A) True 
 B)False

Question 13

A 5% debenture (face value = $1000) pays interest on June 30 and December 31. It is callable at a price of 105% together with accrued interest. Suppose the company decides to call the bonds on September 30. What price must it pay for each bond?

Accepted Answer

A)  $1000.00 
B)  $1037.50 
C)  $1062.50 
D)  $1050.00 
A)  $1000.00 
B)  $1037.50 
C)  $1062.50 
D)  $1050.00

Question 14

Explain why firms issue convertible debt.

Accepted Answer

Smaller and more risky firms generally i

Question 15

Two major differences between a warrant and a call option are:
I. Warrant 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 option exercise does not.

Accepted Answer

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

Question 16

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

Accepted Answer

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

Question 17

A negative pledge clause states that the company may grant an exclusive lien or claim on any of its assets.

Accepted Answer

A) True 
 B)False

Question 18

Privately placed loans are advantageous because:

Accepted Answer

A)  There are usually fewer restrictive covenants 
B)  There is direct contact with the lender and renegotiations can be handled more easily 
C)  SEC registration is necessary 
D)  Both B and C 
A)  There are usually fewer restrictive covenants 
B)  There is direct contact with the lender and renegotiations can be handled more easily 
C)  SEC registration is necessary 
D)  Both B and C

Question 19

Floating-rate bonds have adjustable rates to protect real rates of return against inflation. The rates paid are limited by:

Accepted Answer

A)  The put provisions of the issues 
B)  A floor rate which sets the minimum 
C)  A cap rate which sets the maximum 
D)  B and C 
A)  The put provisions of the issues 
B)  A floor rate which sets the minimum 
C)  A cap rate which sets the maximum 
D)  B and C

Question 20

The written agreement between a corporation and the bondholder's representative is called:

Accepted Answer

A)  The indenture 
B)  The collateral maintenance agreement 
C)  The prospectus 
D)  The debenture 
A)  The indenture 
B)  The collateral maintenance agreement 
C)  The prospectus 
D)  The debenture

Exam 24: The Many Different Kinds of Debt

A sinking fund is useful to a corporation because:

A bond-warrant package:

The term "Yankee bond" refers to any bond sold in the United States.

Project finance is generally provided by:

In general which of the following statements is true?

Bonds issued in the United States are usually registered.

Which of the following would not generally be included in the typical bond indenture? I) The basic terms of the bond II) Details of the protective covenants III) Sinking fund arrangements IV) Call provisions

A type of bond that has the advantage of secrecy of ownership, but has the disadvantage of ownership not recorded by the registrar is:

A "yankee bond" is a bond

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 price?

Very large bond issues that are marketed both internationally as well as in individual domestic markets are called:

Project finance requires a capital investment that can be clearly separated from the parent that offers tangible security to lenders.

A 5% debenture (face value = $1000) pays interest on June 30 and December 31. It is callable at a price of 105% together with accrued interest. Suppose the company decides to call the bonds on September 30. What price must it pay for each bond?

Explain why firms issue convertible debt.

A negative pledge clause states that the company may grant an exclusive lien or claim on any of its assets.

Privately placed loans are advantageous because:

Floating-rate bonds have adjustable rates to protect real rates of return against inflation. The rates paid are limited by:

The written agreement between a corporation and the bondholder's representative is called:

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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