Question 1

The largest sector of the asset-backed security market is the ________ market.

Accepted Answer

A) collateralized debt obligation 
B) mortgage-backed security 
C) real property-backed security 
D) double-barreled security 
A) collateralized debt obligation 
B) mortgage-backed security 
C) real property-backed security 
D) double-barreled security

Question 2

In January 2010, the U.S. Treasury issued a $1000 par, ten-year, inflation-indexed note with a coupon of 4%. On the date of issue, the consumer price index (CPI)was 200. By January 2020, the CPI had increased to 300. The principal payment that was made in January 2020 is closest to:

Accepted Answer

A) $1000 
B) $1020 
C) $1030 
D) $1500 
A) $1000 
B) $1020 
C) $1030 
D) $1500

Question 3

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

Accepted Answer

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

Question 4

Use the information for the question(s)below.
Luther Industries has just issued a callable (at 102)ten-year, 8% coupon bond with semiannual coupon payments. The bond can be called at 102 in three years or anytime thereafter on a coupon payment date. It has a current price of 99.
-What is the Yield to Maturity (YTM)on this bond?

Accepted Answer

N = 20 (10 × 2)
PMT

Question 5

Rearden Metal has just issued a callable, $1000 par value, twenty-year, 8% coupon bond with semiannual coupon payments. The bond can be called at par in five years or anytime thereafter on a coupon payment date. If the bond is currently trading for $1040.79, then its yield to maturity is closest to:

Accepted Answer

A) 3.8% 
B) 7.0% 
C) 7.6% 
D) 8.0% 
A) 3.8% 
B) 7.0% 
C) 7.6% 
D) 8.0%

Question 6

Which of the following statements is FALSE?

Accepted Answer

A) In the event of default, the assets not pledged as collateral for outstanding bonds cannot be used to pay off the holders of subordinated debentures until all more senior debt has been paid off. 
B) Because more than one debenture might be outstanding, the bondholder's priority in claiming assets in the event of default, known as the bond's seniority, is important. 
C) When a firm conducts a subsequent debenture issue that has lower priority than its outstanding debt, the new debt is known as a subordinated debenture. 
D) Most debenture issues contain clauses restricting the company from issuing new debt with equal or lower priority than existing debt. 
A) In the event of default, the assets not pledged as collateral for outstanding bonds cannot be used to pay off the holders of subordinated debentures until all more senior debt has been paid off. 
B) Because more than one debenture might be outstanding, the bondholder's priority in claiming assets in the event of default, known as the bond's seniority, is important. 
C) When a firm conducts a subsequent debenture issue that has lower priority than its outstanding debt, the new debt is known as a subordinated debenture. 
D) Most debenture issues contain clauses restricting the company from issuing new debt with equal or lower priority than existing debt.

Question 7

Bonds issued by a local entity, denominated in the local currency, traded in a local market, but purchased by foreigners are called:

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 8

Which of the following statements regarding sinking fund provisions is FALSE?

Accepted Answer

A) With a sinking fund, if a bond is trading at below its face value, because the bonds are repurchased at par the decision as to which bonds to repurchase is made by lottery. 
B) With a sinking fund, instead of repaying the entire principal balance on the maturity date, the company makes regular payments into a sinking fund administered by a trustee over the life of the bond. 
C) Sinking fund provisions usually specify a minimum rate at which the issuer must contribute to the fund. 
D) Because the sinking fund allows the issuer to repurchase the bonds at par, the option to accelerate the payments is another form of call provision. 
A) With a sinking fund, if a bond is trading at below its face value, because the bonds are repurchased at par the decision as to which bonds to repurchase is made by lottery. 
B) With a sinking fund, instead of repaying the entire principal balance on the maturity date, the company makes regular payments into a sinking fund administered by a trustee over the life of the bond. 
C) Sinking fund provisions usually specify a minimum rate at which the issuer must contribute to the fund. 
D) Because the sinking fund allows the issuer to repurchase the bonds at par, the option to accelerate the payments is another form of call provision.

Question 9

Treasury securities that are semiannual coupon bonds with original maturities of between 1 and 10 years are called:

Accepted Answer

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

Question 10

Galt Industries has just issued a callable, $1000 par value, five-year, 6% coupon bond with semiannual coupon payments. The bond can be called at par in three years or anytime thereafter on a coupon payment date. If the bond is currently trading for $978.94, then its yield to maturity is closest to:

Accepted Answer

A) 3.4% 
B) 6.0% 
C) 6.5% 
D) 6.8% 
A) 3.4% 
B) 6.0% 
C) 6.5% 
D) 6.8%

Question 11

Use the information for the question(s)below.
Luther Industries has just issued a callable (at 102)ten-year, 8% coupon bond with semiannual coupon payments. The bond can be called at 102 in three years or anytime thereafter on a coupon payment date. It has a current price of 99.
-What is the Yield to Call (YTC)on this bond?

Accepted Answer

N = 6 (3 × 2)
PMT =

Question 12

The cash flows of a collateralized debt obligation are usually divided into how many different branches?

Accepted Answer

A) 2 
B) 3 
C) 4 
D) 6 
A) 2 
B) 3 
C) 4 
D) 6

Question 13

When banks resecuritize other asset-backed securities, the new asset-backed security is known as a:

Accepted Answer

A) mortgage-backed security. 
B) double-barreled security. 
C) collateralized debt obligation. 
D) resecuritized security. 
A) mortgage-backed security. 
B) double-barreled security. 
C) collateralized debt obligation. 
D) resecuritized security.

Question 14

Treasury securities that are pure discount bonds with original maturities ranging from a few days to 26 weeks are called:

Accepted Answer

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

Exam 24: Debt Financing

The largest sector of the asset-backed security market is the ________ market.

In January 2010, the U.S. Treasury issued a $1000 par, ten-year, inflation-indexed note with a coupon of 4%. On the date of issue, the consumer price index (CPI)was 200. By January 2020, the CPI had increased to 300. The principal payment that was made in January 2020 is closest to:

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

Which of the following statements is FALSE?

Bonds issued by a local entity, denominated in the local currency, traded in a local market, but purchased by foreigners are called:

Which of the following statements regarding sinking fund provisions is FALSE?

Treasury securities that are semiannual coupon bonds with original maturities of between 1 and 10 years are called:

The cash flows of a collateralized debt obligation are usually divided into how many different branches?

When banks resecuritize other asset-backed securities, the new asset-backed security is known as a:

Treasury securities that are pure discount bonds with original maturities ranging from a few days to 26 weeks are called:

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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