Question 1

Which of the following statements is most accurate?

Accepted Answer

A) In the event of default,the assets not pledged as collateral for outstanding bonds can be used to pay off the holders of subordinated debentures before more senior debt has been paid off. 
B) Even though more than one debenture might be outstanding,the bondholders all have the same priority in claiming assets in the event of default. 
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. 
E) Debentures are a type of secured corporate debt with maturities greater than 10 years. 
A) In the event of default,the assets not pledged as collateral for outstanding bonds can be used to pay off the holders of subordinated debentures before more senior debt has been paid off. 
B) Even though more than one debenture might be outstanding,the bondholders all have the same priority in claiming assets in the event of default. 
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. 
E) Debentures are a type of secured corporate debt with maturities greater than 10 years.

Question 2

When would a firm choose to call a callable bond?

Accepted Answer

When the market pric

Question 3

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

Accepted Answer

A) mortgage bonds 
B) notes 
C) asset-backed bonds 
D) debentures 
E) unsecured debt 
A) mortgage bonds 
B) notes 
C) asset-backed bonds 
D) debentures 
E) unsecured debt

Question 4

Covenants in a bond contract restrict the actions that management of a firm can take that would benefit the debt holders of the firm at the expense of the equity holders of that firm.

Accepted Answer

A) True 
 B)False

Question 5

Gepps Cross Industries issues debt with a maturity of 25 years.In the case of bankruptcy,holders of this debt may only claim those assets of the firm that are not already pledged as collateral on other debt.Which of the following best describes this type of corporate debt?

Accepted Answer

A) a note 
B) a debenture 
C) an asset-backed bond 
D) unsecured debt 
E) a mortgage bond 
A) a note 
B) a debenture 
C) an asset-backed bond 
D) unsecured debt 
E) a mortgage bond

Question 6

A company issues a callable (at par)ten-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 yield to maturity of 3.1%,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) $103.78 
B) $100.00 
C) $107.00 
D) $96.36 
E) $133.10 
A) $103.78 
B) $100.00 
C) $107.00 
D) $96.36 
E) $133.10

Question 7

A firm issues the convertible debt shown above.The price of stock in this company on July 1,2008 is $6.58.What is the minimum call price that would make a bondholder prefer to accept the call rather than convert?

Accepted Answer

A) par 
B) par plus 0.6% 
C) par plus 4% 
D) par plus 6% 
E) par plus 8% 
A) par 
B) par plus 0.6% 
C) par plus 4% 
D) par plus 6% 
E) par plus 8%

Question 8

Which of the following is a typical bond covenant restriction on the issuance of new debt?

Accepted Answer

A) New debt must have a lower coupon payment than existing debt. 
B) No new debt can be issued until existing debt has been paid. 
C) New debt cannot mature before existing debt. 
D) New debt must be offered at a discount. 
E) New debt must be subordinate to existing debt. 
A) New debt must have a lower coupon payment than existing debt. 
B) No new debt can be issued until existing debt has been paid. 
C) New debt cannot mature before existing debt. 
D) New debt must be offered at a discount. 
E) New debt must be subordinate to existing debt.

Question 9

Clearview Corporation,a company that deals mainly with the financing and distribution of music,issues debt with a maturity of 15 years.In the case of bankruptcy,holders of this debt will have claim to the intellectual property of Clearview.Which of the following best describes this type of corporate debt?

Accepted Answer

A) a note 
B) a debenture 
C) a mortgage bond 
D) an asset-backed bond 
E) unsecured debt 
A) a note 
B) a debenture 
C) a mortgage bond 
D) an asset-backed bond 
E) unsecured debt

Question 10

Private debt cannot be in the form of bonds.

Accepted Answer

A) True 
 B)False

Question 11

On July 1,2014,The Government of Canada issues a 30-year real return bond with a 4.5% semi annual coupon.The consumer price index (CPI)on that date is 103.15.What is the face value and coupon payment on this bond on July 1,2017 id the CPI on that date is 109.37?

Accepted Answer

A) face value $1060.30; coupon payment $23.86 
B) face value $1093.70; coupon payment $24.61 
C) face value $1060.30; coupon payment $24.61 
D) face value $1093.70; coupon payment $23.86 
E) face value $1031.50; coupon payment $23.21 
A) face value $1060.30; coupon payment $23.86 
B) face value $1093.70; coupon payment $24.61 
C) face value $1060.30; coupon payment $24.61 
D) face value $1093.70; coupon payment $23.86 
E) face value $1031.50; coupon payment $23.21

Question 12

The purchase by a group of private investors of all the equity of a public corporation,primarily through debt financing,is known as a(n):

Accepted Answer

A) IPO. 
B) SEO. 
C) LBO. 
D) debt buyout. 
E) equity buyout. 
A) IPO. 
B) SEO. 
C) LBO. 
D) debt buyout. 
E) equity buyout.

Which of the following statements is most accurate?

When would a firm choose to call a callable bond?

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

Covenants in a bond contract restrict the actions that management of a firm can take that would benefit the debt holders of the firm at the expense of the equity holders of that firm.

Gepps Cross Industries issues debt with a maturity of 25 years.In the case of bankruptcy,holders of this debt may only claim those assets of the firm that are not already pledged as collateral on other debt.Which of the following best describes this type of corporate debt?

A firm issues the convertible debt shown above.The price of stock in this company on July 1,2008 is $6.58.What is the minimum call price that would make a bondholder prefer to accept the call rather than convert?

Which of the following is a typical bond covenant restriction on the issuance of new debt?

Private debt cannot be in the form of bonds.

On July 1,2014,The Government of Canada issues a 30-year real return bond with a 4.5% semi annual coupon.The consumer price index (CPI)on that date is 103.15.What is the face value and coupon payment on this bond on July 1,2017 id the CPI on that date is 109.37?

The purchase by a group of private investors of all the equity of a public corporation,primarily through debt financing,is known as a(n):

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

Exam 15: Debt Financing

Which of the following statements is most accurate?

When would a firm choose to call a callable bond?

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

Covenants in a bond contract restrict the actions that management of a firm can take that would benefit the debt holders of the firm at the expense of the equity holders of that firm.

Gepps Cross Industries issues debt with a maturity of 25 years.In the case of bankruptcy,holders of this debt may only claim those assets of the firm that are not already pledged as collateral on other debt.Which of the following best describes this type of corporate debt?

A firm issues the convertible debt shown above.The price of stock in this company on July 1,2008 is $6.58.What is the minimum call price that would make a bondholder prefer to accept the call rather than convert?

Which of the following is a typical bond covenant restriction on the issuance of new debt?

Private debt cannot be in the form of bonds.

On July 1,2014,The Government of Canada issues a 30-year real return bond with a 4.5% semi annual coupon.The consumer price index (CPI)on that date is 103.15.What is the face value and coupon payment on this bond on July 1,2017 id the CPI on that date is 109.37?

The purchase by a group of private investors of all the equity of a public corporation,primarily through debt financing,is known as a(n):

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