Question 1

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

Accepted Answer

There are two basic differences. First, a bond issued in the United States will generally have a fixed interest rate, while a Eurobond will usually have a floating interest rate tied to LIBOR. Second, bonds sold in the United States are almost always registered, which means that the company's registrar records the owner's name; most Eurobonds are sold in bearer form.

Question 2

A 5 percent debenture (face value = $1,000) pays interest on June 30 and December 31.It is callable at a price of 105 percent together with accrued interest.Suppose the company decides to call the bonds on September 30.What amount must it pay for each bond?

Accepted Answer

A) $1,000 
B) $1,037.50 
C) $1,062.50 
D) $1,050 
A) $1,000 
B) $1,037.50 
C) $1,062.50 
D) $1,050 C

Question 3

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. D

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Briefly explain what is meant by force conversion.

Accepted Answer

If the conversion value is greater than

Question 7

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) $975. 
A) $40. 
B) $25. 
C) $100. 
D) $975.

Question 8

Briefly explain the provisions of a typical bond indenture.

Accepted Answer

An indenture is a written agreement betw

Question 9

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.What is the conversion price?

Accepted Answer

A) $35 
B) $7.70 
C) $28.57 
D) $975 
A) $35 
B) $7.70 
C) $28.57 
D) $975

Question 10

The term bearer bond refers to bonds that bear little interest via coupon payments.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following bonds is typically secured?

Accepted Answer

A) Sinking fund debenture 
B) Mortgage bond 
C) Floating rate note 
D) Eurobond 
A) Sinking fund debenture 
B) Mortgage bond 
C) Floating rate note 
D) Eurobond

Question 12

Explain why firms issue convertible debt.

Accepted Answer

Smaller and more risky firms generally i

Question 13

Bonds issued in the United States are usually registered.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following increase(s) the difficulty of valuing convertible bonds?

Accepted Answer

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

Question 15

A convertible bond issue can be thought of as the

Accepted Answer

A) sale of a straight bond. 
B) sale of a straight bond and a call option. 
C) sale of a put option. 
D) sale of common stock. 
A) sale of a straight bond. 
B) sale of a straight bond and a call option. 
C) sale of a put option. 
D) sale of common stock.

Question 16

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 options are correct. 
A) Eurobonds. 
B) foreign bonds. 
C) global bonds. 
D) None of the options are correct.

Question 17

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 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. W

Question 19

Which of the following bonds is typically not secured?

Accepted Answer

A) Collateral trust bond 
B) Mortgage bond 
C) Debenture 
D) Equipment trust certificate 
A) Collateral trust bond 
B) Mortgage bond 
C) Debenture 
D) Equipment trust certificate

Question 20

What are the three elements of convertible bond value?

Accepted Answer

The value of a convertible bond is deter

Exam 24: The Many Different Kinds of Debt

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

A 5 percent debenture (face value = $1,000) pays interest on June 30 and December 31.It is callable at a price of 105 percent together with accrued interest.Suppose the company decides to call the bonds on September 30.What amount must it pay for each bond?

The trust company for a bond issue represents the

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

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

Briefly explain what is meant by force conversion.

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

Briefly explain the provisions of a typical bond indenture.

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.What is the conversion price?

The term bearer bond refers to bonds that bear little interest via coupon payments.

Which of the following bonds is typically secured?

Explain why firms issue convertible debt.

Bonds issued in the United States are usually registered.

Which of the following increase(s) the difficulty of valuing convertible bonds?

A convertible bond issue can be thought of as the

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

Generally, convertible bonds are issued by

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

Which of the following bonds is typically not secured?

What are the three elements of convertible bond value?

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 Risk

Financial Analysis

Financial Planning

Working Capital Management

Mergers

Corporate Restructuring

Governance and Corporate Control Around the World

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