Exam 20: Markets for Corporate Senior Instruments: II

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The law governing bankruptcy in the United States is the Bankruptcy Reform Act of 1978. One purpose of the act is to set forth the rules for a corporation to be liquidated or reorganized. Distinguish between a liquidation and a reorganization.

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Question 1

Correct Answer:

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Liquidation means that all the assets of the corporation will be distributed to holders of claims on the corporation, and no corporate entity will survive. In a reorganization, a new corporate entity will result. Some holders of claims on the bankrupt corporation will receive cash in exchange for their claims; others may receive new securities in the corporation that results from the reorganization; and still others may receive a combination of both cash and new securities in the resulting corporation.

The Bankruptcy Reform Act of 1978 is the law governing bankruptcy in the United States.

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(True/False)

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Question 2

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True

Common stock is a class of stock in which the dividend rate is typically a fixed percentage of par or face value.

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(True/False)

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Question 3

Correct Answer:

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False

Bonds that have been downgraded can fall into a group described as ________.

(Multiple Choice)

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Question 4

________ companies can be divided into airlines, railroads, and trucking companies.

(Multiple Choice)

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Question 5

Which of the below statements is TRUE?

(Multiple Choice)

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Question 6

By senior corporate securities, we mean that the holder of the senior security has priority over the ________.

(Multiple Choice)

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Question 7

Electronic bond trading makes up about 30% of corporate bond trading. Name three major advantages of electronic trading over traditional corporate bond trading in the over-the-counter market.

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Question 8

In reorganizations, the absolute priority rule generally holds, but in liquidations under Chapter 11, it is often violated.

(True/False)

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Question 9

Historically, there have been issues entitling the preferred stockholder to participate in earnings distribution beyond the specified amount (based on some formula). Preferred stock with this feature is referred to as ________.

(Multiple Choice)

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Question 10

In assessing the credit risk of a corporate issuer, the rating agencies never look at the ability of an issuer to make the contractual payments to debt holders.

(True/False)

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Question 11

A provision in the tax code exempts ________ from federal income taxation, if the recipient is a qualified corporation.

(Multiple Choice)

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Question 12

Which of the below is NOT one of the three types of preferred stock?

(Multiple Choice)

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Question 13

In essence, the high-yield bond market shifts the risk from commercial banks to the investing public in general. There are four advantages to such a shift. Describe two of these advantages.

(Essay)

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Question 14

Having achieved an understanding of a corporation's business risk and corporate governance risk, the rating agencies move on to assessing financial risk, which involves traditional ratio analysis and other factors affecting the firm's financing.

(True/False)

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Question 15

Business risk is the risk associated with operating cash flows.

(True/False)

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Question 16

Which of the below statements is TRUE?

(Multiple Choice)

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Question 17

In assessing the credit risk of a corporate issuer, the rating agencies never look at the protections afforded to debt holders that are provided by covenants limiting management's discretion.

(True/False)

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Question 18

Occasionally, the ability of an issuer to make interest and principal payments is seriously and unexpectedly changed by (1) a natural or industrial accident or some regulatory change, or (2) a takeover or corporate restructuring.

(True/False)

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Question 19

In liquidations, the ________ generally holds, but in reorganizations under Chapter 11, it is often violated.

(Multiple Choice)

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Question 20

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Exam 20: Markets for Corporate Senior Instruments: II

The law governing bankruptcy in the United States is the Bankruptcy Reform Act of 1978. One purpose of the act is to set forth the rules for a corporation to be liquidated or reorganized. Distinguish between a liquidation and a reorganization.

The Bankruptcy Reform Act of 1978 is the law governing bankruptcy in the United States.

Common stock is a class of stock in which the dividend rate is typically a fixed percentage of par or face value.

Bonds that have been downgraded can fall into a group described as ________.

________ companies can be divided into airlines, railroads, and trucking companies.

Which of the below statements is TRUE?

By senior corporate securities, we mean that the holder of the senior security has priority over the ________.

Electronic bond trading makes up about 30% of corporate bond trading. Name three major advantages of electronic trading over traditional corporate bond trading in the over-the-counter market.

In reorganizations, the absolute priority rule generally holds, but in liquidations under Chapter 11, it is often violated.

Historically, there have been issues entitling the preferred stockholder to participate in earnings distribution beyond the specified amount (based on some formula). Preferred stock with this feature is referred to as ________.

In assessing the credit risk of a corporate issuer, the rating agencies never look at the ability of an issuer to make the contractual payments to debt holders.

A provision in the tax code exempts ________ from federal income taxation, if the recipient is a qualified corporation.

Which of the below is NOT one of the three types of preferred stock?

In essence, the high-yield bond market shifts the risk from commercial banks to the investing public in general. There are four advantages to such a shift. Describe two of these advantages.

Having achieved an understanding of a corporation's business risk and corporate governance risk, the rating agencies move on to assessing financial risk, which involves traditional ratio analysis and other factors affecting the firm's financing.

Business risk is the risk associated with operating cash flows.

Which of the below statements is TRUE?

In assessing the credit risk of a corporate issuer, the rating agencies never look at the protections afforded to debt holders that are provided by covenants limiting management's discretion.

Occasionally, the ability of an issuer to make interest and principal payments is seriously and unexpectedly changed by (1) a natural or industrial accident or some regulatory change, or (2) a takeover or corporate restructuring.

In liquidations, the ________ generally holds, but in reorganizations under Chapter 11, it is often violated.

Introduction

Financial Institutions, Financial Intermediaries, and Asset Management Firms

Depository Institutions: Activities and Characteristics

The U.S. Federal Reserve and the Creation of Money

Monetary Policy in the United States

Insurance Companies

Investment Companies and Exchange Traded Funds

Pension Funds

Properties and Pricing of Financial Assets

The Level and Structure of Interest Rates

The Term Structure of Interest Rates

Risk/Return and Asset Pricing Models

Primary Markets and the Underwriting of Securities

Secondary Markets

Treasury and Agency Securities Markets

Municipal Securities Markets

Markets for Common Stock: The Basic Characteristics

Markets for Common Stock: Structure and Organization

Markets for Corporate Senior Instruments: I

The Markets for Bank Obligations

The Residential Mortgage Market

Mortgage-Backed Securities Market

Market for Commercial Mortgage Loans and Commercial Mortgage-Backed Securities

Market for Asset-Backed Securities

Financial Futures Markets

Options Markets

Pricing of Futures and Options Contracts

The Applications of Futures and Options Contracts

OTC Interest Rate Derivatives: Forward Rate Agreements, Swaps, Caps, and Floors

Market for Credit Risk Transfer Vehicles: Credit Derivatives and Collateralized Debt Obligations

The Market for Foreign Exchange and Risk Control Instruments

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