Question 1

In general, which of the following statements is (are) true?

Accepted Answer

A) Bonds issued in the United States are registered and Eurobonds are normally issued in a major currency (e.g., $US, euro, or yen). 
B) Bonds issued in the United States are bearer bonds. 
C) Eurobonds are normally issued in a major currency (e.g., $US, euro, or yen). 
D) Bonds issued in the United States are bearer bonds and Eurobonds are normally issued in the local currency. 
A) Bonds issued in the United States are registered and Eurobonds are normally issued in a major currency (e.g., $US, euro, or yen). 
B) Bonds issued in the United States are bearer bonds. 
C) Eurobonds are normally issued in a major currency (e.g., $US, euro, or yen). 
D) Bonds issued in the United States are bearer bonds and Eurobonds are normally issued in the local currency.

Question 2

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 because cash is paid into the firm at the time of warrant exercise. 
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 because cash is paid into the firm at the time of warrant exercise.

Question 3

Discuss the differences between publicly issued bonds and private placements.

Accepted Answer

Mainly, there are three differences. Fir

Question 4

Which of the following statements about convertible bonds is true?

Accepted Answer

A) A convertible bond cannot have a sinking fund. 
B) A callable bond cannot have a convertible feature. 
C) A convertible bond can also have a call feature. 
D) A convertible bond must have a sinking fund. 
A) A convertible bond cannot have a sinking fund. 
B) A callable bond cannot have a convertible feature. 
C) A convertible bond can also have a call feature. 
D) A convertible bond must have a sinking fund.

Question 5

A "samurai bond" is a bond

Accepted Answer

A) sold by a company from Japan. 
B) sold in the United States by a company from Japan. 
C) sold in Japan by a local company. 
D) sold in Japan by a company from some other country. 
A) sold by a company from Japan. 
B) sold in the United States by a company from Japan. 
C) sold in Japan by a local company. 
D) sold in Japan by a company from some other country.

Question 6

Briefly explain the term conversion premium.

Accepted Answer

The conversion premium is the difference

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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 9

The Alfa Co.has a 12 percent bond outstanding on a $1,000 face value bond that pays interest on February 1 and July 1.Today is March 1 and you are planning to purchase one of these bonds.How much will you pay in accrued interest?

Accepted Answer

A) $10 
B) $20 
C) $30 
D) $60 
A) $10 
B) $20 
C) $30 
D) $60

Question 10

A firm may prefer to issue a convertible bond, as opposed to issuing equity, because

Accepted Answer

A) a convertible issue sends a better signal to investors than an issue of common stock. 
B) a convertible issue shows the management's willingness to take a chance that the stock price will rise enough to lead to conversion and also signals management's confidence in the future. 
C) a convertible issue sends a better signal to investors than an issue of common stock, and an announcement of a stock issue generates worries of overvaluation and usually depresses the stock price. 
D) a convertible issue sends a better signal to investors than an issue of common stock, an announcement of a stock issue generates worries of overvaluation and usually depresses the stock price, and a convertible issue shows the management's willingness to take a chance that the stock price will rise enough to lead to conversion and also signals management's confidence in the future. 
A) a convertible issue sends a better signal to investors than an issue of common stock. 
B) a convertible issue shows the management's willingness to take a chance that the stock price will rise enough to lead to conversion and also signals management's confidence in the future. 
C) a convertible issue sends a better signal to investors than an issue of common stock, and an announcement of a stock issue generates worries of overvaluation and usually depresses the stock price. 
D) a convertible issue sends a better signal to investors than an issue of common stock, an announcement of a stock issue generates worries of overvaluation and usually depresses the stock price, and a convertible issue shows the management's willingness to take a chance that the stock price will rise enough to lead to conversion and also signals management's confidence in the future.

Question 11

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 12

Many times warrants may be issued on their own and do not have to be issued in conjunction with other securities.

Accepted Answer

A) True 
 B)False

Question 13

What are reverse floaters?

Accepted Answer

Reverse floaters are floating-

Question 14

Long-term bonds that are unsecured obligations of a company are called

Accepted Answer

A) indentures. 
B) debentures. 
C) mortgage bonds. 
D) bearer bonds. 
A) indentures. 
B) debentures. 
C) mortgage bonds. 
D) bearer bonds.

Question 15

The following are various types of secured debt:

Accepted Answer

A) mortgage bonds only. 
B) mortgage bonds and collateral trust bonds only. 
C) mortgage bonds, collateral trust bonds, and equipment trust certificate only. 
D) mortgage bonds, collateral trust bonds, equipment trust certificate, and debentures. 
A) mortgage bonds only. 
B) mortgage bonds and collateral trust bonds only. 
C) mortgage bonds, collateral trust bonds, and equipment trust certificate only. 
D) mortgage bonds, collateral trust bonds, equipment trust certificate, and debentures.

Question 16

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 17

Briefly explain project financing.

Accepted Answer

Project financing refers to debt financi

Question 18

Firms often bundle up a group of assets and then sell the cash flows from these assets in the form of securities.They are called

Accepted Answer

A) debentures. 
B) subordinated issues. 
C) asset-backed securities. 
D) mortgage bonds. 
A) debentures. 
B) subordinated issues. 
C) asset-backed securities. 
D) mortgage bonds.

Question 19

The recovery rate on defaulting debt is the highest for the following type of debt:

Accepted Answer

A) bank debt. 
B) senior secured bonds. 
C) senior subordinated bonds. 
D) junior subordinated bonds. 
A) bank debt. 
B) senior secured bonds. 
C) senior subordinated bonds. 
D) junior subordinated bonds.

Question 20

A type of bond that has the advantage of secrecy of ownership, but has the disadvantage of ownership not recorded by the firm's registrar, is a

Accepted Answer

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

Exam 24: The Many Different Kinds of Debt

In general, which of the following statements is (are) true?

The exercise of warrants creates new shares which

Discuss the differences between publicly issued bonds and private placements.

Which of the following statements about convertible bonds is true?

A "samurai bond" is a bond

Briefly explain the term conversion premium.

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

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

The Alfa Co.has a 12 percent bond outstanding on a $1,000 face value bond that pays interest on February 1 and July 1.Today is March 1 and you are planning to purchase one of these bonds.How much will you pay in accrued interest?

A firm may prefer to issue a convertible bond, as opposed to issuing equity, because

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

Many times warrants may be issued on their own and do not have to be issued in conjunction with other securities.

What are reverse floaters?

Long-term bonds that are unsecured obligations of a company are called

The following are various types of secured debt:

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

Briefly explain project financing.

Firms often bundle up a group of assets and then sell the cash flows from these assets in the form of securities.They are called

The recovery rate on defaulting debt is the highest for the following type of debt:

A type of bond that has the advantage of secrecy of ownership, but has the disadvantage of ownership not recorded by the firm's registrar, is a

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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