Question 1

When the required rate of return is ____ the coupon rate, the bond will sell at a discount.

Accepted Answer

A)  less than 
B)  greater than 
C)  the same as 
D)  not equal to 
A)  less than 
B)  greater than 
C)  the same as 
D)  not equal to

Question 2

What is the value of a PacTen bond with a 10 percent coupon that matures in 15 years? Assume the current market rate for this bond is 16 percent and that interest is paid semiannually.

Accepted Answer

A)  $661.90 
B)  $1,227.78 
C)  $1,000.00 
D)  $875.51 
A)  $661.90 
B)  $1,227.78 
C)  $1,000.00 
D)  $875.51

Question 3

____ are not secured by specific assets.

Accepted Answer

A)  Equipment trust certificates 
B)  Mortgage bonds 
C)  Debentures 
D)  Collateral trust bonds 
A)  Equipment trust certificates 
B)  Mortgage bonds 
C)  Debentures 
D)  Collateral trust bonds

Question 4

The ____ of a debt issue is equal to the difference between the ____ and the ____.

Accepted Answer

A)  call price; market price; par value 
B)  call price; market price; call premium 
C)  call premium; call price; par value 
D)  call premium; market price; par value 
A)  call price; market price; par value 
B)  call price; market price; call premium 
C)  call premium; call price; par value 
D)  call premium; market price; par value

Question 5

An indenture on long-term debt does all of the following EXCEPT it ________.

Accepted Answer

A)  lists restrictions placed on the borrower by the lender 
B)  specifies the manner in which the principal must be repaid 
C)  allows the borrower to borrow extensively so that the interest may be regularly paid 
D)  details the nature of the debt issue 
A)  lists restrictions placed on the borrower by the lender 
B)  specifies the manner in which the principal must be repaid 
C)  allows the borrower to borrow extensively so that the interest may be regularly paid 
D)  details the nature of the debt issue

Question 6

How much would you have to pay for a U.S. Government bond ($1,000 maturity value) scheduled to mature in February 2020 and quoted at 118:07 "bid" and 118:15 "asked"?

Accepted Answer

A)  $1,182.19 
B)  $1,181.50 
C)  $1,184.69 
D)  $1,180.70 
A)  $1,182.19 
B)  $1,181.50 
C)  $1,184.69 
D)  $1,180.70

Question 7

Zero coupon bonds are an example of ___________.

Accepted Answer

A)  original issue deep discount bonds 
B)  extendible notes 
C)  convertible bonds 
D)  floating rate notes 
A)  original issue deep discount bonds 
B)  extendible notes 
C)  convertible bonds 
D)  floating rate notes

Question 8

Determine the yield to maturity to the nearest tenth of 1 percent of a zero coupon bond with 8 years to maturity that is currently selling for $404.

Accepted Answer

A)  11.3% 
B)  12.3% 
C)  11.7% 
D)  12.0% 
A)  11.3% 
B)  12.3% 
C)  11.7% 
D)  12.0%

Question 9

Extendable notes are redeemable at par at the option of the ___________.

Accepted Answer

A)  holder only 
B)  company only 
C)  trustee only 
D)  holder and trustee 
A)  holder only 
B)  company only 
C)  trustee only 
D)  holder and trustee

Question 10

The call feature is an advantage to the issuing firm if _______.

Accepted Answer

A)  the bond has a floating rate 
B)  interest rates decline 
C)  the bond has a low par value 
D)  interest rates increase 
A)  the bond has a floating rate 
B)  interest rates decline 
C)  the bond has a low par value 
D)  interest rates increase

Question 11

Users of preferred stock include ______.

Accepted Answer

A)  utility companies 
B)  capital-intensive companies undergoing expansion 
C)  large commercial banks 
D)  All of these are correct 
A)  utility companies 
B)  capital-intensive companies undergoing expansion 
C)  large commercial banks 
D)  All of these are correct

Question 12

All of the following are characteristics of leveraged buyouts EXCEPT _____.

Accepted Answer

A)  a large amount of the purchase price is borrowed 
B)  the purchased assets of the bought firm are used as collateral for the buyout 
C)  LBOs have led to enormous wealth increases for the common stockholders of the acquired firm 
D)  the impact of most LBOs has been an increase in the bond ratings of the acquired firm because of the decrease in perceived risk 
A)  a large amount of the purchase price is borrowed 
B)  the purchased assets of the bought firm are used as collateral for the buyout 
C)  LBOs have led to enormous wealth increases for the common stockholders of the acquired firm 
D)  the impact of most LBOs has been an increase in the bond ratings of the acquired firm because of the decrease in perceived risk

Question 13

A ______ is an option to purchase shares of a company's common stock at a specified price during a given time period.

Accepted Answer

A)  warrant 
B)  call option 
C)  call premium 
D)  debenture 
A)  warrant 
B)  call option 
C)  call premium 
D)  debenture

Question 14

Junk bonds (i.e., bonds issued by companies with weak financial positions) are rated ____ or lower by Standard & Poor's.

Accepted Answer

A)  Baa 
B)  BB 
C)  Ba 
D)  CCC 
A)  Baa 
B)  BB 
C)  Ba 
D)  CCC

Question 15

Normally the coupon rates on new bonds ______.

Accepted Answer

A)  do not change over the life of the issue 
B)  are set equal to the market rate plus an inflation premium 
C)  float with changes in the prime rate 
D)  are set just over the prevailing prime rate 
A)  do not change over the life of the issue 
B)  are set equal to the market rate plus an inflation premium 
C)  float with changes in the prime rate 
D)  are set just over the prevailing prime rate

Question 16

Mighty Mollusk Inc. issued a 30-year bond that is callable in 8 years. It has a coupon rate of 5.5% payable semiannually, a yield to maturity of 8%, and a call premium of one year's interest. What is the yield to call?

Accepted Answer

A)  6.75% 
B)  13,67% 
C)  4.82% 
D)  11.42% 
A)  6.75% 
B)  13,67% 
C)  4.82% 
D)  11.42%

Question 17

Preferred stock has a priority over common stock with regard to the company's ______.

Accepted Answer

A)  assets only 
B)  voting rights only 
C)  dividends only 
D)  assets and dividends 
A)  assets only 
B)  voting rights only 
C)  dividends only 
D)  assets and dividends

Question 18

The basic relationship in bond valuation is for a given percentage point change in the required rate of return, the ____ the time to maturity, the ____ the change in value.

Accepted Answer

A)  shorter; greater 
B)  longer; smaller 
C)  longer; greater 
D)  shorter; smaller 
A)  shorter; greater 
B)  longer; smaller 
C)  longer; greater 
D)  shorter; smaller

Question 19

What is the required rate of return to the investor who is willing to purchase a Duke Power preferred stock with a $8.70 dividend, a par value of $100, and a current market price of $87?

Accepted Answer

A)  10.7% 
B)  8.7% 
C)  9.4% 
D)  10.0% 
A)  10.7% 
B)  8.7% 
C)  9.4% 
D)  10.0%

Question 20

The indenture is a contract between the issuer and lenders that does all the following EXCEPT ______.

Accepted Answer

A)  specify the manner in which the principal must be repaid 
B)  detail the nature of the debt issue 
C)  give management's expectations about return of the proceeds 
D)  list any restrictive covenants 
A)  specify the manner in which the principal must be repaid 
B)  detail the nature of the debt issue 
C)  give management's expectations about return of the proceeds 
D)  list any restrictive covenants

Exam 7: Fixed Income Securities: Characteristics and Valuation

When the required rate of return is ____ the coupon rate, the bond will sell at a discount.

What is the value of a PacTen bond with a 10 percent coupon that matures in 15 years? Assume the current market rate for this bond is 16 percent and that interest is paid semiannually.

____ are not secured by specific assets.

The ____ of a debt issue is equal to the difference between the ____ and the ____.

An indenture on long-term debt does all of the following EXCEPT it ________.

How much would you have to pay for a U.S. Government bond ($1,000 maturity value) scheduled to mature in February 2020 and quoted at 118:07 "bid" and 118:15 "asked"?

Zero coupon bonds are an example of ___________.

Determine the yield to maturity to the nearest tenth of 1 percent of a zero coupon bond with 8 years to maturity that is currently selling for $404.

Extendable notes are redeemable at par at the option of the ___________.

The call feature is an advantage to the issuing firm if _______.

Users of preferred stock include ______.

All of the following are characteristics of leveraged buyouts EXCEPT _____.

A ______ is an option to purchase shares of a company's common stock at a specified price during a given time period.

Junk bonds (i.e., bonds issued by companies with weak financial positions) are rated ____ or lower by Standard & Poor's.

Normally the coupon rates on new bonds ______.

Mighty Mollusk Inc. issued a 30-year bond that is callable in 8 years. It has a coupon rate of 5.5% payable semiannually, a yield to maturity of 8%, and a call premium of one year's interest. What is the yield to call?

Preferred stock has a priority over common stock with regard to the company's ______.

The basic relationship in bond valuation is for a given percentage point change in the required rate of return, the ____ the time to maturity, the ____ the change in value.

What is the required rate of return to the investor who is willing to purchase a Duke Power preferred stock with a $8.70 dividend, a par value of $100, and a current market price of $87?

The indenture is a contract between the issuer and lenders that does all the following EXCEPT ______.

The Role and Objective of Financial Management

The Domestic and International Financial Marketplace

Evaluation of Financial Performance

Financial Planning and Forecasting

The Time Value of Money

Continuous Compounding and Discounting

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Mutually Exclusive Investments Having Unequal Lives

Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital

Capital Structure Concepts

Breakeven Analysis

Capital Structure Management in Practice

Dividend Policy

Working Capital Policy and Short-Term Financing

The Management of Cash and Marketable Securities

The Management of Accounts Receivable and Inventories

Lease and Intermediate Term Financing

Financing With Derivatives

Bond Refunding Analysis

Risk Management

International Financial Management

Corporate Restructuring

Filters

The of a debt issue is equal to the difference between the and the .

The basic relationship in bond valuation is for a given percentage point change in the required rate of return, the the time to maturity, the the change in value.