Deck 6: Creditors and Credit Rating Agencies

Question 1

Generally, which of the following is true?

A)Creditor rights are usually less explicit than shareholder rights.
B)Bondholders are primarily willing to take risk.
C)Credit rating agencies rate bonds for potential investors.
D)All of the above.
E)None of the above.

Answer 1

C

Question 2

In order to get favorable interest rates, a firm may have to reveal intimate details of its projects and agree to numerous covenants.

Answer 2

True

Question 3

Which bond is rated the highest according to Moody's ratings system?

A)Caa
B)B
C)Aa
D)A
E)Baa

Answer 3

C

Question 4

Firms with a lot of debt offer their managers greater flexibility to make value enhancing capital expenditures when opportunities "suddenly" arise.

Question 5

Considering credit protection legal systems, the following countries belong to the English legal system EXCEPT

A)Canada
B)South Africa
C)Thailand
D)Japan
E)United Kingdom

Question 6

A firm's creditors and stockholders are often both viewed as investors.

Question 7

Which investor would get first claim on the assets of a company that is struggling financially?

A)Common Stock Investors
B)Preferred Stock Investors
C)Bond Investors
D)The investor that acts fastest.
E)No one would, the company would be bankrupt

Question 8

Considering creditor protection legal systems, the English legal system is based on common law, whereas the Scandinavian legal systems are based on civil law.

Question 9

Credit rating agencies are exempt from disclosure rules, meaning they do not need to reveal non-public or sensitive information.

Question 10

In reality, creditors are lending to stockholders, thus putting them on opposing sides of the credit claim.

Question 11

In general, there are two kinds of lenders, institutional lenders such as commercial banks and stockholders.