Question 1

A firm raising capital by issuing callable bonds instead of non-callable bonds will either have to pay a higher coupon rate or accept lower proceeds.

Accepted Answer

A) True 
 B)False

Question 2

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

Question 3

A callable bond will typically have a(n)________ yield than an otherwise identical bond without a call feature because ________.

Accepted Answer

A) lower,the firm loses flexibility with a callable bond 
B) higher,the firm loses flexibility with a callable bond 
C) lower,the option to call a bond is valuable 
D) higher,the option to call a bond is valuable 
E) identical,the call feature is without value 
A) lower,the firm loses flexibility with a callable bond 
B) higher,the firm loses flexibility with a callable bond 
C) lower,the option to call a bond is valuable 
D) higher,the option to call a bond is valuable 
E) identical,the call feature is without value

Question 4

How might equity holders benefit from bond covenants?

Accepted Answer

The stronger the covenants in the bond c

Question 5

Which of the following best describes an international bond that is NOT denominated in the local currency of the country in which it is issued?

Accepted Answer

A) a domestic bond 
B) a foreign bond 
C) a Eurobond 
D) a global bond 
E) a corporate bond 
A) a domestic bond 
B) a foreign bond 
C) a Eurobond 
D) a global bond 
E) a corporate bond

Question 6

A covenant that restricts a company from making loans or otherwise providing credit is best viewed as a restriction on which of the following?

Accepted Answer

A) issuing new debt 
B) dividends and share repurchases 
C) mergers and acquisitions 
D) asset disposition 
E) investment opportunities 
A) issuing new debt 
B) dividends and share repurchases 
C) mergers and acquisitions 
D) asset disposition 
E) investment opportunities

Question 7

Which of the following best describes a bond that is issued by a local entity and traded in a local market,but that may be purchased by foreigners?

Accepted Answer

A) a domestic bond 
B) a foreign bond 
C) a Eurobond 
D) a global bond 
E) a corporate bond 
A) a domestic bond 
B) a foreign bond 
C) a Eurobond 
D) a global bond 
E) a corporate bond

Question 8

What is bond seniority?

Accepted Answer

Seniority is a bondholder's pr

Question 9

A company issues a callable (at par)ten-year coupon bond with annual coupon payments.The bond can be called at par in one year after release or any time after that on a coupon payment date.On release,it has a price of $107 per $100 of face value,and has a yield to call of 3.5%.What is the bond's coupon rate?

Accepted Answer

A) 4.34% 
B) 3.5% 
C) 7.00% 
D) 10.75% 
E) 3.27% 
A) 4.34% 
B) 3.5% 
C) 7.00% 
D) 10.75% 
E) 3.27%

Question 10

A bond has a face value of $10,000 and a conversion price of $17.86.The stock is currently trading at $16.30.What is the conversion ratio?

Accepted Answer

A) 330 
B) 487 
C) 500 
D) 560 
E) 614 
A) 330 
B) 487 
C) 500 
D) 560 
E) 614

Question 11

A bond has a face value of $100 and a conversion ratio of 28.What is the conversion price?

Accepted Answer

A) $0.28 
B) $2.80 
C) $3.57 
D) $7.14 
E) $28.00 
A) $0.28 
B) $2.80 
C) $3.57 
D) $7.14 
E) $28.00

Question 12

A bond issued by a local (municipal)government in Canada may contain the following features:

Accepted Answer

A) General obligation; revenue bond; or serial bonds,with no federal or provincial guarantee. 
B) General obligation; revenue bond; or serial bonds,with only a provincial guarantee. 
C) General obligation; revenue bond; or serial bonds,with only a federal guarantee. 
D) Only general obligation or serial bonds,with no federal or provincial guarantee. 
E) Only general obligation or serial bonds,with only a provincial guarantee. 
A) General obligation; revenue bond; or serial bonds,with no federal or provincial guarantee. 
B) General obligation; revenue bond; or serial bonds,with only a provincial guarantee. 
C) General obligation; revenue bond; or serial bonds,with only a federal guarantee. 
D) Only general obligation or serial bonds,with no federal or provincial guarantee. 
E) Only general obligation or serial bonds,with only a provincial guarantee.

Question 13

A company issues a callable (at par)five-year,7% coupon bond with annual coupon payments.The bond can be called at par in one year after release or any time after that on a coupon payment date.On release,it has a price of $110 per $100 of face value.What is the yield to maturity of this bond when it is released?

Accepted Answer

A) 1.40%% 
B) 2.80% 
C) 4.71% 
D) 5.66% 
E) 7.00% 
A) 1.40%% 
B) 2.80% 
C) 4.71% 
D) 5.66% 
E) 7.00%

Question 14

BC Brewery issues $30 million in straight bonds at an original issue discount of 2% and a coupon rate of 6%.The firm also pays underwriting fees of 2.5% on the face value of the bonds.What are the net proceeds to BC Brewery from the bond issue?

Accepted Answer

A) $27.45 million 
B) $26.85 million 
C) $29.25 million 
D) $30 million 
E) $28.65 million 
A) $27.45 million 
B) $26.85 million 
C) $29.25 million 
D) $30 million 
E) $28.65 million

Question 15

A bond with a face value of $1000 is convertible to common stock at a conversion ratio of 60.If the stock is currently trading at $8.20 per share,the value of the bond is probably closest in value to which of the following?

Accepted Answer

A) less than $492 
B) about $492 
C) about $508 
D) about $1000 
E) above $1666 
A) less than $492 
B) about $492 
C) about $508 
D) about $1000 
E) above $1666

Question 16

Why do the issuers of bonds seek to increase the strength and number of covenants in a bond agreement?

Accepted Answer

A) Covenants favour the equity holders that managers work for. 
B) Covenants can increase the flexibility of the company issuing the bond. 
C) Covenants lower the interest rate investors will require to buy the bond. 
D) Covenants force the company to renegotiate the terms of the bond if they are broken. 
E) Covenants increase a firm's default risk. 
A) Covenants favour the equity holders that managers work for. 
B) Covenants can increase the flexibility of the company issuing the bond. 
C) Covenants lower the interest rate investors will require to buy the bond. 
D) Covenants force the company to renegotiate the terms of the bond if they are broken. 
E) Covenants increase a firm's default risk.

Question 17

If a company issues both a straight bond and a convertible bond simultaneously,at par,then the straight bond will have a higher interest rate.

Accepted Answer

A) True 
 B)False

Question 18

A company issues a callable (at par)ten-year,6% coupon bond with annual coupon payments.The bond can be called at par in one year after release or any time after that on a coupon payment date.On release,it has a yield to maturity of 4.8%,which is below the yield to call.What is the price of this bond per $100 of face value when it is released?

Accepted Answer

A) $101.15 
B) $109.36 
C) $100.00 
D) $104.80 
E) $95.42 
A) $101.15 
B) $109.36 
C) $100.00 
D) $104.80 
E) $95.42

Question 19

Which of the following statements regarding bond covenants is most accurate?

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 higher 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 seldom contain covenants that restrict the ability of management to pay dividends. 
E) Equity holders try to include as few covenants as possible in a bond agreement. 
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 higher 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 seldom contain covenants that restrict the ability of management to pay dividends. 
E) Equity holders try to include as few covenants as possible in a bond agreement.

Question 20

The public debt market is substantially larger than the private debt market.

Accepted Answer

A) True 
 B)False

Exam 15: Debt Financing

A firm raising capital by issuing callable bonds instead of non-callable bonds will either have to pay a higher coupon rate or accept lower proceeds.

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

A callable bond will typically have a(n)________ yield than an otherwise identical bond without a call feature because ________.

How might equity holders benefit from bond covenants?

Which of the following best describes an international bond that is NOT denominated in the local currency of the country in which it is issued?

A covenant that restricts a company from making loans or otherwise providing credit is best viewed as a restriction on which of the following?

Which of the following best describes a bond that is issued by a local entity and traded in a local market,but that may be purchased by foreigners?

What is bond seniority?

A bond has a face value of $10,000 and a conversion price of $17.86.The stock is currently trading at $16.30.What is the conversion ratio?

A bond has a face value of $100 and a conversion ratio of 28.What is the conversion price?

A bond issued by a local (municipal)government in Canada may contain the following features:

BC Brewery issues $30 million in straight bonds at an original issue discount of 2% and a coupon rate of 6%.The firm also pays underwriting fees of 2.5% on the face value of the bonds.What are the net proceeds to BC Brewery from the bond issue?

A bond with a face value of $1000 is convertible to common stock at a conversion ratio of 60.If the stock is currently trading at $8.20 per share,the value of the bond is probably closest in value to which of the following?

Why do the issuers of bonds seek to increase the strength and number of covenants in a bond agreement?

If a company issues both a straight bond and a convertible bond simultaneously,at par,then the straight bond will have a higher interest rate.

Which of the following statements regarding bond covenants is most accurate?

The public debt market is substantially larger than the private debt market.

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

Filters

A callable bond will typically have a(n) yield than an otherwise identical bond without a call feature because .