Question 1

Bonds issued in the United States are usually registered.

Accepted Answer

A) True 
 B)False

Question 2

A puttable provision in a bond allows the:

Accepted Answer

A) issuer to call the bond at par on the coupon payment date. 
B) holder to redeem the bond at par before maturity. 
C) issuer to extend the maturity of the bond. 
D) holder to extend the maturity of the bond. 
A) issuer to call the bond at par on the coupon payment date. 
B) holder to redeem the bond at par before maturity. 
C) issuer to extend the maturity of the bond. 
D) holder to extend the maturity of the bond.

Question 3

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 4

A loan guarantee provided by the government on a corporate bond acts like what kind of derivative security for the investor?

Accepted Answer

A) Long put 
B) Short put 
C) Long call 
D) Short call 
A) Long put 
B) Short put 
C) Long call 
D) Short call

Question 5

Explain the differences between warrants and convertibles.

Accepted Answer

The main differences are: warrants are u

Question 6

PIKs are:

Accepted Answer

A) pay-in-kind bonds. 
B) pay interest kicker bonds. 
C) pay interest in Krugerrands. 
D) pay interest in kroner. 
A) pay-in-kind bonds. 
B) pay interest kicker bonds. 
C) pay interest in Krugerrands. 
D) pay interest in kroner.

Question 7

The Alfa Co.has a 6% coupon bond outstanding that pays semiannual interest.Calculate the semiannual interest payment on a $1,000 face value bond.

Accepted Answer

A) $60 
B) $30 
C) $10 
D) $6 
A) $60 
B) $30 
C) $10 
D) $6

Question 8

Briefly explain what is meant by force conversion.

Accepted Answer

If the conversion value is greater than

Question 9

Which of the following situations increase the difficulty of valuing convertible bonds?

Accepted Answer

A) Dividends 
B) Dilution caused by conversion 
C) Changing bond price 
D) All of the options 
A) Dividends 
B) Dilution caused by conversion 
C) Changing bond price 
D) All of the options

Question 10

An 8% debenture has five years of call protection and is thereafter callable at 100%,except that it is nonrefundable below interest cost.Which of the following statements is correct?

Accepted Answer

A) The debenture may be called any time during the next five years. 
B) The debenture may not be called during the next five years. 
C) The lender has the option to demand early repayment. 
D) The bond should be called when the yield on similar noncallable bonds falls to 8%. 
A) The debenture may be called any time during the next five years. 
B) The debenture may not be called during the next five years. 
C) The lender has the option to demand early repayment. 
D) The bond should be called when the yield on similar noncallable bonds falls to 8%.

Question 11

The trust company for a bond issue represents the:

Accepted Answer

A) managers of the firm. 
B) firm's shareholders. 
C) firm's board of directors. 
D) firm's bondholders. 
A) managers of the firm. 
B) firm's shareholders. 
C) firm's board of directors. 
D) firm's bondholders.

Question 12

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 13

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 value of the bond?

Accepted Answer

A) $1,000 
B) $875 
C) $1,200 
D) $965 
A) $1,000 
B) $875 
C) $1,200 
D) $965

Question 14

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

Accepted Answer

A) nonrecourse covenant. 
B) recourse covenant. 
C) positive covenant. 
D) negative covenant. 
A) nonrecourse covenant. 
B) recourse covenant. 
C) positive covenant. 
D) negative covenant.

Question 15

Floating price convertibles are convertible debt where bondholders can convert into a fixed value of shares.

Accepted Answer

A) True 
 B)False

Question 16

The exercise of warrants creates new shares which:

Accepted Answer

A) increases the total number of shares but does not affect share value. 
B) increases the total number of shares and reduces the individual share value. 
C) does not change the number of shares outstanding,similar to options. 
D) increases share value beca 
A) increases the total number of shares but does not affect share value. 
B) increases the total number of shares and reduces the individual share value. 
C) does not change the number of shares outstanding,similar to options. 
D) increases share value beca

Question 17

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 18

Briefly explain project financing.

Accepted Answer

Project financing refers to debt financi

Question 19

All else equal,which of the following features will increase the value of a convertible bond?

Accepted Answer

A) The risk-free interest rate is higher. 
B) The conversion ratio is higher. 
C) The conversion price is lower. 
D) All of the features increase the value. 
A) The risk-free interest rate is higher. 
B) The conversion ratio is higher. 
C) The conversion price is lower. 
D) All of the features increase the value.

Question 20

A zero-coupon bond is also called a(n):

Accepted Answer

A) income bond. 
B) original issue discount bond. 
C) pure discount bond. 
D) premium bond. 
A) income bond. 
B) original issue discount bond. 
C) pure discount bond. 
D) premium bond.

Exam 24: The Many Different Kinds of Debt

Bonds issued in the United States are usually registered.

A puttable provision in a bond allows the:

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

A loan guarantee provided by the government on a corporate bond acts like what kind of derivative security for the investor?

Explain the differences between warrants and convertibles.

PIKs are:

The Alfa Co.has a 6% coupon bond outstanding that pays semiannual interest.Calculate the semiannual interest payment on a $1,000 face value bond.

Briefly explain what is meant by force conversion.

Which of the following situations increase the difficulty of valuing convertible bonds?

An 8% debenture has five years of call protection and is thereafter callable at 100%,except that it is nonrefundable below interest cost.Which of the following statements is correct?

The trust company for a bond issue represents the:

A sinking fund is useful to a corporation because:

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 value of the bond?

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

Floating price convertibles are convertible debt where bondholders can convert into a fixed value of shares.

The exercise of warrants creates new shares which:

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

Briefly explain project financing.

All else equal,which of the following features will increase the value of a convertible bond?

A zero-coupon bond is also called a(n):

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