Question 1

The holder of a $1,000 face value bond can exchange the bond any time for 25 shares of stock. Then the conversion ratio

Accepted Answer

A) is 40. 
B) is 25. 
C) is 100. 
D) depends on the current market price of the bond. 
A) is 40. 
B) is 25. 
C) is 100. 
D) depends on the current market price of the bond.

Question 2

Discuss the differences between publicly issued bonds and private placements.

Accepted Answer

Mainly, there are three differences. Fir

Question 3

Any bond that is issued at a discount is known as

Accepted Answer

A) a pure discount bond. 
B) a zero-coupon bond. 
C) an original issue discount bond. 
D) a premium bond. 
A) a pure discount bond. 
B) a zero-coupon bond. 
C) an original issue discount bond. 
D) a premium bond.

Question 4

Privately placed loans are advantageous because

Accepted Answer

A) there are usually fewer restrictive covenants. 
B) there is direct contact with the lender and renegotiations can be handled more easily. 
C) SEC registration is necessary. 
D) there are usually fewer restrictive covenants and SEC registration is necessary. 
A) there are usually fewer restrictive covenants. 
B) there is direct contact with the lender and renegotiations can be handled more easily. 
C) SEC registration is necessary. 
D) there are usually fewer restrictive covenants and SEC registration is necessary.

Question 5

Bonds issued in the United States are usually registered.

Accepted Answer

A) True 
 B)False

Question 6

The written agreement between a corporation and the bondholder's representative is called the

Accepted Answer

A) indenture. 
B) collateral maintenance agreement. 
C) prospectus. 
D) debenture. 
A) indenture. 
B) collateral maintenance agreement. 
C) prospectus. 
D) debenture.

Question 7

The recovery rate on defaulting debt is the least for the following type of debt:

Accepted Answer

A) bank debt. 
B) senior secured bonds. 
C) senior subordinated bonds. 
D) junior subordinated bonds. 
A) bank debt. 
B) senior secured bonds. 
C) senior subordinated bonds. 
D) junior subordinated bonds.

Question 8

LIBOR means

Accepted Answer

A) London Interbank Offered Rate. 
B) London International Bank Offered Rate. 
C) Long-term International Bank Offered Rate. 
D) Liberty of Repayment. 
A) London Interbank Offered Rate. 
B) London International Bank Offered Rate. 
C) Long-term International Bank Offered Rate. 
D) Liberty of Repayment.

Question 9

Very large bond issues that are marketed both internationally as well as in individual domestic markets are called

Accepted Answer

A) Eurobonds. 
B) foreign bonds. 
C) global bonds. 
D) None of the options are correct. 
A) Eurobonds. 
B) foreign bonds. 
C) global bonds. 
D) None of the options are correct.

Question 10

The recovery rate on defaulting debt is the highest for the following type of debt:

Accepted Answer

A) bank debt. 
B) senior secured bonds. 
C) senior subordinated bonds. 
D) junior subordinated bonds. 
A) bank debt. 
B) senior secured bonds. 
C) senior subordinated bonds. 
D) junior subordinated bonds.

Question 11

A convertible bond issue can be thought of as the

Accepted Answer

A) sale of a straight bond. 
B) sale of a straight bond and a call option. 
C) sale of a put option. 
D) sale of common stock. 
A) sale of a straight bond. 
B) sale of a straight bond and a call option. 
C) sale of a put option. 
D) sale of common stock.

Question 12

A warrant holder is not entitled to vote but receives dividends.

Accepted Answer

A) True 
 B)False

Question 13

The difference between the price of callable and noncallable bonds is greatest when bond prices are lowest.

Accepted Answer

A) True 
 B)False

Question 14

The Alfa Co. has a 6 percent coupon bond outstanding that pays semiannual interest. Calculate the semiannual interest payment on a $1,000 face value bond.

Accepted Answer

A) $60 
B) $30 
C) $10 
D) $6 
A) $60 
B) $30 
C) $10 
D) $6

Question 15

The holders of ZZZ Corporation's bonds with a face value of $1,000 can exchange that bond for 35 shares of stock. The stock is selling for $25. What is the conversion value of the bond?

Accepted Answer

A) $1,000 
B) $875 
C) $1,200 
D) $965 
A) $1,000 
B) $875 
C) $1,200 
D) $965

Question 16

Discuss the valuation of a convertible bond.

Accepted Answer

The value of a convertible bond will be

Question 17

The trust company for a bond issue represents the

Accepted Answer

A) managers of the firm. 
B) firm's shareholders. 
C) firm's board of directors. 
D) firm's bondholders. 
A) managers of the firm. 
B) firm's shareholders. 
C) firm's board of directors. 
D) firm's bondholders.

Question 18

A bond-warrant package

Accepted Answer

A) always increases the risk of the common equity. 
B) always decreases the risk of the common equity. 
C) could either increase or decrease the risk of the common equity. 
D) does not affect the risk of common equity. 
A) always increases the risk of the common equity. 
B) always decreases the risk of the common equity. 
C) could either increase or decrease the risk of the common equity. 
D) does not affect the risk of common equity.

Question 19

Which of the following bonds is secured by assets?

Accepted Answer

A) A mortgage bond 
B) A floating rate bond 
C) A debenture 
D) An indenture 
A) A mortgage bond 
B) A floating rate bond 
C) A debenture 
D) An indenture

Question 20

What are PIK bonds?

Accepted Answer

PIK (pay-in-kind)bonds carry h

Exam 24: The Many Different Kinds of Debt

The holder of a $1,000 face value bond can exchange the bond any time for 25 shares of stock. Then the conversion ratio

Discuss the differences between publicly issued bonds and private placements.

Any bond that is issued at a discount is known as

Privately placed loans are advantageous because

Bonds issued in the United States are usually registered.

The written agreement between a corporation and the bondholder's representative is called the

The recovery rate on defaulting debt is the least for the following type of debt:

LIBOR means

Very large bond issues that are marketed both internationally as well as in individual domestic markets are called

The recovery rate on defaulting debt is the highest for the following type of debt:

A convertible bond issue can be thought of as the

A warrant holder is not entitled to vote but receives dividends.

The difference between the price of callable and noncallable bonds is greatest when bond prices are lowest.

The Alfa Co. has a 6 percent coupon bond outstanding that pays semiannual interest. Calculate the semiannual interest payment on a $1,000 face value bond.

The holders of ZZZ Corporation's bonds with a face value of $1,000 can exchange that bond for 35 shares of stock. The stock is selling for $25. What is the conversion value of the bond?

Discuss the valuation of a convertible bond.

The trust company for a bond issue represents the

A bond-warrant package

Which of the following bonds is secured by assets?

What are PIK bonds?

Introduction to Corporate Finance

How to Calculate Present Values

Valuing Bonds

The Value of Common Stocks

Net Present Value and Other Investment Criteria

Making Investment Decisions With the Net Present Value Rule

Introduction to Risk and Return

Portfolio Theory and the Capital Asset Pricing Model

Risk and the Cost of Capital

Project Analysis

How to Ensure That Projects Truly Have Positive Npvs

Agency Problems and Investment

Efficient Markets and Behavioral Finance

An Overview of Corporate Financing

How Corporations Issue Securities

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Real Options

Credit Risk and the Value of Corporate Debt

Leasing

Managing Risk

Managing International Risks

Financial Analysis

Financial Planning

Working Capital Management

Mergers

Corporate Restructuring

Governance and Corporate Control Around the World

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