Question 1

You own a bond with a face value of $1,000 and a conversion ratio of 45. The conversion price is closest to:

Accepted Answer

A) $18 
B) $22 
C) $45 
D) $1,000 
A) $18 
B) $22 
C) $45 
D) $1,000

Question 2

Treasury securities that are standard coupon bonds where the outstanding principal is adjusted for inflation are called:

Accepted Answer

A) Treasury notes. 
B) Treasury bonds. 
C) TIPS. 
D) Treasury bills. 
A) Treasury notes. 
B) Treasury bonds. 
C) TIPS. 
D) Treasury bills.

Question 3

Which of the following statements is FALSE?

Accepted Answer

A) Before the call date, investors anticipate the optimal strategy that the issuer will follow, and the bond price reflects this strategy. 
B) The yield to maturity of a callable bond is calculated as if the bond were called at the earliest opportunity. 
C) A callable bond will trade at a lower price (and therefore a higher yield)than an otherwise equivalent non-callable bond. 
D) The price of a callable bond can be low when yields are high, but does not rise above the call value when the yield is low. 
A) Before the call date, investors anticipate the optimal strategy that the issuer will follow, and the bond price reflects this strategy. 
B) The yield to maturity of a callable bond is calculated as if the bond were called at the earliest opportunity. 
C) A callable bond will trade at a lower price (and therefore a higher yield)than an otherwise equivalent non-callable bond. 
D) The price of a callable bond can be low when yields are high, but does not rise above the call value when the yield is low.

Question 4

Which of the following statements regarding private placements is FALSE?

Accepted Answer

A) A private placement is a bond issue that does not trade on a public market but rather is sold to a small group of investors. 
B) Privately placed debt need not conform to the same standards as public debt; as a consequence, it can be tailored to the particular situation. 
C) In 1990, the U.S. Securities and Exchange Commission (SE
C) issued Rule 144A, which significantly decreased the liquidity of certain privately placed debt. 
D) Because a private placement does not need to be registered, it is less costly to issue. 
A) A private placement is a bond issue that does not trade on a public market but rather is sold to a small group of investors. 
B) Privately placed debt need not conform to the same standards as public debt; as a consequence, it can be tailored to the particular situation. 
C) In 1990, the U.S. Securities and Exchange Commission (SE
C) issued Rule 144A, which significantly decreased the liquidity of certain privately placed debt. 
D) Because a private placement does not need to be registered, it is less costly to issue.

Question 5

Suppose that in January 2001, the U.S. Treasury issued a ten-year inflation-indexed note with a coupon of 3 1/2%. On the date of issue the consumer price index (CPI)was 175.1. In January 2006, the CPI had increased to 198.3. What coupon payment was made on this bond in January 2006?

Accepted Answer

Between January 2001 and January 2006 th

Question 6

Which of the following statements is FALSE?

Accepted Answer

A) Almost all bonds that are issued today are registered bonds. 
B) The trust company represents the bondholders and makes sure that the terms of the indenture are enforced. 
C) For private placements, the prospectus must include an indenture, a formal contract between the bond issuer and a trust company. 
D) In the case of default, the trust company represents the bondholders' interests. 
A) Almost all bonds that are issued today are registered bonds. 
B) The trust company represents the bondholders and makes sure that the terms of the indenture are enforced. 
C) For private placements, the prospectus must include an indenture, a formal contract between the bond issuer and a trust company. 
D) In the case of default, the trust company represents the bondholders' interests.

Question 7

Treasury securities that are semiannual-paying coupon bonds with maturities longer than 10 years are called:

Accepted Answer

A) Treasury bonds. 
B) TIPS. 
C) Treasury bills. 
D) Treasury notes. 
A) Treasury bonds. 
B) TIPS. 
C) Treasury bills. 
D) Treasury notes.

Question 8

An asset-backed security backed by home mortgages is a:

Accepted Answer

A) mortgage-backed security. 
B) primary home-backed security. 
C) bond-backed security. 
D) real estate-backed security. 
A) mortgage-backed security. 
B) primary home-backed security. 
C) bond-backed security. 
D) real estate-backed security.

Question 9

Use the information for the question(s)below.
KT Enterprises has just issued a callable (at par)fifteen-year, 7% coupon bond with semiannual coupon payments. The bond can be called at par in five years or anytime thereafter on a coupon payment date. It has a current price of 101.
-What is the Yield to Call (YTC)on this bond?

Accepted Answer

N = 10 (5 × 2)
PMT =

Question 10

In January 2010, the U.S. Treasury issued a $1000 par, five-year, inflation-indexed note with a coupon of 5%. On the date of issue, the consumer price index (CPI)was 250. By January 2015, the CPI had decreased to 200. The principal payment that was made in January 2015 is closest to:

Accepted Answer

A) $800 
B) $1000 
C) $1250 
D) $1500 
A) $800 
B) $1000 
C) $1250 
D) $1500

Question 11

Use the information for the question(s)below.
KT Enterprises has just issued a callable (at par)fifteen-year, 7% coupon bond with semiannual coupon payments. The bond can be called at par in five years or anytime thereafter on a coupon payment date. It has a current price of 101.
-What is the Yield to Maturity (YTM)on this bond?

Accepted Answer

N = 30 (15 × 2)
PMT

Question 12

Which of the following statements is FALSE?

Accepted Answer

A) When bond yields have increased, by exercising the call on the callable bond and then immediately refinancing, the issuer can lower its borrowing costs. 
B) To understand how call provisions affect the price of a bond, we first need to consider when an issuer will exercise its right to call the bond. 
C) If the call provision offers a cheaper way to retire the bonds the issuer will forgo the option of purchasing the bonds in the open market and call the bonds instead. 
D) An issuer can always retire one of its bonds early by repurchasing the bond in the open market. 
A) When bond yields have increased, by exercising the call on the callable bond and then immediately refinancing, the issuer can lower its borrowing costs. 
B) To understand how call provisions affect the price of a bond, we first need to consider when an issuer will exercise its right to call the bond. 
C) If the call provision offers a cheaper way to retire the bonds the issuer will forgo the option of purchasing the bonds in the open market and call the bonds instead. 
D) An issuer can always retire one of its bonds early by repurchasing the bond in the open market.

Question 13

Which of the following statements is FALSE?

Accepted Answer

A) In the case of a Treasury note or Treasury bond offering, the stop-out yield determines the coupon of the bond and then all bidders pay the discounted value for the bond or note. 
B) All competitive bidders submit sealed bids in terms of yields and the amount of bonds they are willing to purchase. 
C) In the past, the Treasury has issued bonds with maturities of 30 years (often called long bonds)and 20 years. 
D) Noncompetitive bidders (usually individuals)just submit the amount of bonds they wish to purchase and are guaranteed to have their orders filled at the auction. 
A) In the case of a Treasury note or Treasury bond offering, the stop-out yield determines the coupon of the bond and then all bidders pay the discounted value for the bond or note. 
B) All competitive bidders submit sealed bids in terms of yields and the amount of bonds they are willing to purchase. 
C) In the past, the Treasury has issued bonds with maturities of 30 years (often called long bonds)and 20 years. 
D) Noncompetitive bidders (usually individuals)just submit the amount of bonds they wish to purchase and are guaranteed to have their orders filled at the auction.

Question 14

What kind of corporate debt has a maturity of less than 10 years?

Accepted Answer

A) Asset-backed bonds 
B) Debentures 
C) Notes 
D) Mortgage bonds 
A) Asset-backed bonds 
B) Debentures 
C) Notes 
D) Mortgage bonds

Question 15

Which of the following statements is FALSE?

Accepted Answer

A) If the issuer fails to live up to any covenant, the issuer goes into bankruptcy. 
B) The stronger the covenants in the bond contract, the less likely the issuer will default on the bond, and so the lower the interest rate investors will require to buy the bond. 
C) Covenants are restrictive clauses in a bond contract that limit the issuer from taking actions that may undercut its ability to repay the bonds. 
D) Bond agreements often contain covenants that restrict the ability of management to pay dividends. 
A) If the issuer fails to live up to any covenant, the issuer goes into bankruptcy. 
B) The stronger the covenants in the bond contract, the less likely the issuer will default on the bond, and so the lower the interest rate investors will require to buy the bond. 
C) Covenants are restrictive clauses in a bond contract that limit the issuer from taking actions that may undercut its ability to repay the bonds. 
D) Bond agreements often contain covenants that restrict the ability of management to pay dividends.

Question 16

A(n)________ cash flows come from the cash flows of underlying financial securities.

Accepted Answer

A) general obligation security's 
B) revenue bond's 
C) asset-backed security's 
D) double-barreled bond's 
A) general obligation security's 
B) revenue bond's 
C) asset-backed security's 
D) double-barreled bond's

Question 17

Bonds issued by a foreign company in a local market, intended for local investors, and denominated in the local currency are known as:

Accepted Answer

A) domestic bonds. 
B) Yankee bonds. 
C) Eurobonds. 
D) foreign bonds. 
A) domestic bonds. 
B) Yankee bonds. 
C) Eurobonds. 
D) foreign bonds.

Question 18

What kind of corporate debt must be secured by real property?

Accepted Answer

A) Mortgage bonds 
B) Notes 
C) Asset-backed bonds 
D) Debentures 
A) Mortgage bonds 
B) Notes 
C) Asset-backed bonds 
D) Debentures

Question 19

In January 2010, the U.S. Treasury issued a $1000 par, five-year, inflation-indexed note with a coupon of 5%. On the date of issue, the consumer price index (CPI)was 250. By January 2015, the CPI had decreased to 200. The coupon payment that was made in January 2015 is closest to:

Accepted Answer

A) $20 
B) $25 
C) $30 
D) $40 
A) $20 
B) $25 
C) $30 
D) $40

Question 20

Which of the following statements is FALSE?

Accepted Answer

A) With registered bonds, on each coupon payment date, the bond issuer consults its list of registered owners and mails each owner a check (or directly deposits the coupon payment into the owner's brokerage account). 
B) If a coupon bond is issued at a discount, it is called an original issue discount bond. 
C) The face value or principal amount of the bond is denominated in standard increments, most often $10,000. 
D) In a public offering, the indenture lays out the terms of the bond issue. 
A) With registered bonds, on each coupon payment date, the bond issuer consults its list of registered owners and mails each owner a check (or directly deposits the coupon payment into the owner's brokerage account). 
B) If a coupon bond is issued at a discount, it is called an original issue discount bond. 
C) The face value or principal amount of the bond is denominated in standard increments, most often $10,000. 
D) In a public offering, the indenture lays out the terms of the bond issue.

Exam 24: Debt Financing

You own a bond with a face value of $1,000 and a conversion ratio of 45. The conversion price is closest to:

Treasury securities that are standard coupon bonds where the outstanding principal is adjusted for inflation are called:

Which of the following statements is FALSE?

Which of the following statements regarding private placements is FALSE?

Suppose that in January 2001, the U.S. Treasury issued a ten-year inflation-indexed note with a coupon of 3 1/2%. On the date of issue the consumer price index (CPI)was 175.1. In January 2006, the CPI had increased to 198.3. What coupon payment was made on this bond in January 2006?

Which of the following statements is FALSE?

Treasury securities that are semiannual-paying coupon bonds with maturities longer than 10 years are called:

An asset-backed security backed by home mortgages is a:

In January 2010, the U.S. Treasury issued a $1000 par, five-year, inflation-indexed note with a coupon of 5%. On the date of issue, the consumer price index (CPI)was 250. By January 2015, the CPI had decreased to 200. The principal payment that was made in January 2015 is closest to:

Which of the following statements is FALSE?

Which of the following statements is FALSE?

What kind of corporate debt has a maturity of less than 10 years?

Which of the following statements is FALSE?

A(n)________ cash flows come from the cash flows of underlying financial securities.

Bonds issued by a foreign company in a local market, intended for local investors, and denominated in the local currency are known as:

What kind of corporate debt must be secured by real property?

In January 2010, the U.S. Treasury issued a $1000 par, five-year, inflation-indexed note with a coupon of 5%. On the date of issue, the consumer price index (CPI)was 250. By January 2015, the CPI had decreased to 200. The coupon payment that was made in January 2015 is closest to:

Which of the following statements is FALSE?

The Corporation

Introduction to Financial Statement Analysis

Financial Decision Making and the Law of One Price

The Time Value of Money

Interest Rates

Valuing Bonds

Investment Decision Rules

Fundamentals of Capital Budgeting

Valuing Stocks

Capital Markets and the Pricing of Risk

Optimal Portfolio Choice and the Capital Asset Pricing Model

Estimating the Cost of Capital

Investor Behavior and Capital Market Efficiency

Capital Structure in a Perfect Market

Debt and Taxes

Financial Distress, Managerial Incentives, and Information

Payout Policy

Capital Budgeting and Valuation With Leverage

Valuation and Financial Modeling: a Case Study

Financial Options

Option Valuation

Real Options

Raising Equity Capital

Leasing

Working Capital Management

Short-Term Financial Planning

Mergers and Acquisitions

Corporate Governance

Risk Management

International Corporate Finance

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