Question 1

Government loan guarantees are a risk-free and costless means for helping struggling firms.

Accepted Answer

A) True 
 B)False

Question 2

Generally,convertible bonds are issued by:

Accepted Answer

A) smaller and more speculative firms. 
B) mature and profitable firms. 
C) very large firms. 
D) the U.S.government. 
A) smaller and more speculative firms. 
B) mature and profitable firms. 
C) very large firms. 
D) the U.S.government.

Question 3

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 4

Briefly explain the provisions of a typical bond indenture.

Accepted Answer

An indenture is a written agreement betw

Question 5

LIBOR means:

Accepted Answer

A) London Interbank Offered Rate. 
B) London International Bank Offered Rate. 
C) Long-term International Bank Offered Rate. 
D) Liberty of Repayment. 
A) London Interbank Offered Rate. 
B) London International Bank Offered Rate. 
C) Long-term International Bank Offered Rate. 
D) Liberty of Repayment.

Question 6

Which of the following is the most 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 undervalued. 
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 undervalued.

Question 7

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

Question 8

Project finance is extensively used in developing countries to finance:

Accepted Answer

A) power projects. 
B) telecommunications projects. 
C) transportation projects. 
D) all of the options. 
A) power projects. 
B) telecommunications projects. 
C) transportation projects. 
D) all of the options.

Question 9

Which of the following are 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 10

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 stockholders

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 11

Which of the following provisions would often be included in the indenture for a first-mortgage bond?

Accepted Answer

A) A limit on officer salaries 
B) A negative pledge clause 
C) A limit on new issues of subordinated debt 
D) A limit on the amount of senior debt that can be issued 
A) A limit on officer salaries 
B) A negative pledge clause 
C) A limit on new issues of subordinated debt 
D) A limit on the amount of senior debt that can be issued

Question 12

Convertible bonds can also have a call feature.

Accepted Answer

A) True 
 B)False

Question 13

A warrant holder is not entitled to vote but receives dividends.

Accepted Answer

A) True 
 B)False

Question 14

A convertible bond is selling for $993.It has 15 years to maturity,$1,000 face value,and pays 8% coupon interest payments annually.Similar straight bonds (nonconvertible)are priced to yield 8.5%.The conversion ratio is 20.The stock is currently selling for $45.Calculate the convertible bond's option value.

Accepted Answer

A) $34.52 
B) $93.00 
C) $7.00 
D) $58.48 
A) $34.52 
B) $93.00 
C) $7.00 
D) $58.48

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Issuing convertible debt makes sense whenever investors have difficulty estimating the risk of the company's bond.

Accepted Answer

A) True 
 B)False

Question 17

A Yankee bond will be denominated in:

Accepted Answer

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

Question 18

Explain why the following phrase is true or false."Government loan guarantees are a costless method for the government to help troubled firms."

Accepted Answer

This phrase is false for many reasons.Wh

Question 19

A Yankee bond is a bond:

Accepted Answer

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

Question 20

The holders of ZZZ Corporation's bonds 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) $35.00 
B) $7.70 
C) $28.57 
D) $975 
A) $35.00 
B) $7.70 
C) $28.57 
D) $975

Exam 24: The Many Different Kinds of Debt

Government loan guarantees are a risk-free and costless means for helping struggling firms.

Generally,convertible bonds are issued by:

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

Briefly explain the provisions of a typical bond indenture.

LIBOR means:

Which of the following is the most sensible reason for issuing convertibles?

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

Project finance is extensively used in developing countries to finance:

Which of the following are 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

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 stockholders

Which of the following provisions would often be included in the indenture for a first-mortgage bond?

Convertible bonds can also have a call feature.

A warrant holder is not entitled to vote but receives dividends.

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

Issuing convertible debt makes sense whenever investors have difficulty estimating the risk of the company's bond.

A Yankee bond will be denominated in:

Explain why the following phrase is true or false."Government loan guarantees are a costless method for the government to help troubled firms."

A Yankee bond is a bond:

The holders of ZZZ Corporation's bonds 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?

Introduction to Corporate Finance

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

Filters