Question 1

High-yield bonds ________.

Accepted Answer

A)  are issues with a credit rating above triple B. 
B)  are issues with a credit rating below triple B. 
C)  have been rated investment grade at the time of issuance and cannot be downgraded subsequently to noninvestment grade. 
D)  cannot be rated noninvestment grade at the time of issuance (e.g., rated as original-issue, high- yield bonds). 
A)  are issues with a credit rating above triple B. 
B)  are issues with a credit rating below triple B. 
C)  have been rated investment grade at the time of issuance and cannot be downgraded subsequently to noninvestment grade. 
D)  cannot be rated noninvestment grade at the time of issuance (e.g., rated as original-issue, high- yield bonds).

Question 2

There are various types of preferred stock but fixed-rate is not one these types.

Accepted Answer

A) True 
 B)False

Question 3

When a company is liquidated, creditors receive distributions based on the absolute priority rule to the extent assets are available.

Accepted Answer

A) True 
 B)False

Question 4

Which of the below statements is FALSE?

Accepted Answer

A)  Warrants may be attached as part of a bond issue with each warrant granting the holder the right to purchase a designated security at a specified price from the issuer of the bond. 
B)  The conversion provision in a corporate bond issue grants the bondholder the right to convert the bond to a predetermined number of shares of common stock of the issuer. 
C)  A callable bond grants the bondholder the right to sell the issue back to the issuer at par value on designated dates. 
D)  Zero-coupon bonds are bonds without coupon payments or a stated interest rate. 
A)  Warrants may be attached as part of a bond issue with each warrant granting the holder the right to purchase a designated security at a specified price from the issuer of the bond. 
B)  The conversion provision in a corporate bond issue grants the bondholder the right to convert the bond to a predetermined number of shares of common stock of the issuer. 
C)  A callable bond grants the bondholder the right to sell the issue back to the issuer at par value on designated dates. 
D)  Zero-coupon bonds are bonds without coupon payments or a stated interest rate.

Question 5

Most corporate bonds are ________; that is, they run for a term of years, and then ________.

Accepted Answer

A)  sinkable bonds; become due and convertible. 
B)  balloon bonds; become due and payable. 
C)  term bonds; become due and payable. 
D)  term bonds; become due but not payable. 
A)  sinkable bonds; become due and convertible. 
B)  balloon bonds; become due and payable. 
C)  term bonds; become due and payable. 
D)  term bonds; become due but not payable.

Question 6

The four general classifications used by bond information services are: ________.

Accepted Answer

A)  utilities, commerce, industrial, and bank holding companies. 
B)  electricals, transportations, utilities, and finance companies. 
C)  utilities, transportations, industrial, and banks and finance companies. 
D)  electricals, transportations, industrial, and financials. 
A)  utilities, commerce, industrial, and bank holding companies. 
B)  electricals, transportations, utilities, and finance companies. 
C)  utilities, transportations, industrial, and banks and finance companies. 
D)  electricals, transportations, industrial, and financials.

Question 7

The ________ does not attempt to precisely predict a given level of recovery, but rather offer ratings that are in the form of an ordinal scale.

Accepted Answer

A)  recovery ordinal system 
B)  ordinal scale system 
C)  recovery rating system 
D)  revival rating system 
A)  recovery ordinal system 
B)  ordinal scale system 
C)  recovery rating system 
D)  revival rating system

Question 8

Which of the below statements is FALSE?

Accepted Answer

A)  The promises of corporate bond issuers and the rights of investors who buy them are set forth in great detail in contracts called bond indentures 
B)  A bond's indenture clearly outlines three important aspects: its maturity, its security, and its provisions for retirement. 
C)  The indenture is made out to the corporate trustee as a representative of the interests of bondholders; that is, the trustee acts in a fiduciary capacity for investors who own the bond issue. 
D)  A corporate trustee is a trust company with officers who are amateurs in performing the functions of a trustee. 
A)  The promises of corporate bond issuers and the rights of investors who buy them are set forth in great detail in contracts called bond indentures 
B)  A bond's indenture clearly outlines three important aspects: its maturity, its security, and its provisions for retirement. 
C)  The indenture is made out to the corporate trustee as a representative of the interests of bondholders; that is, the trustee acts in a fiduciary capacity for investors who own the bond issue. 
D)  A corporate trustee is a trust company with officers who are amateurs in performing the functions of a trustee.

Question 9

Preferred stock has no important similarities with debt.

Accepted Answer

A) True 
 B)False

Question 10

Features of a corporate bond include ________.

Accepted Answer

A)  promises by the corporate issuer to pay a specified percentage of the bond's market value on designated dates. 
B)  failure to pay either principal or interest when due constitutes legal default, and court proceedings can be instituted to enforce the contract. 
C)  prior legal claim by preferred stockholders over common and bondholders as to both income and assets of the corporation for the principal and interest due them. 
D)  promises by the corporate issuer to repay par or principal value of the bond after the maturity date. 
A)  promises by the corporate issuer to pay a specified percentage of the bond's market value on designated dates. 
B)  failure to pay either principal or interest when due constitutes legal default, and court proceedings can be instituted to enforce the contract. 
C)  prior legal claim by preferred stockholders over common and bondholders as to both income and assets of the corporation for the principal and interest due them. 
D)  promises by the corporate issuer to repay par or principal value of the bond after the maturity date.

Question 11

Payments made to preferred stockholders are treated as a distribution of earnings and therefore are not tax deductible to the issuing corporation.

Accepted Answer

A) True 
 B)False

Question 12

One of the four general classifications used by bond information includes the class called "utilities," which can be further broken down into ________.

Accepted Answer

A)  electric power companies, gas distribution companies, water companies, and communication companies. 
B)  airlines, railroads, and trucking companies. 
C)  manufacturing, merchandising, and service companies. 
D)  depository institutions, non-life insurance companies, and mutual funds. 
A)  electric power companies, gas distribution companies, water companies, and communication companies. 
B)  airlines, railroads, and trucking companies. 
C)  manufacturing, merchandising, and service companies. 
D)  depository institutions, non-life insurance companies, and mutual funds.

Question 13

________ of the bankruptcy act deals with the liquidation of a company; ________ covers reorganization.

Accepted Answer

A)  Chapter 1; Chapter 2 
B)  Chapter 7; Chapter 12 
C)  Chapter 7; Chapter 11 
D)  Chapter 11; Chapter 17 
A)  Chapter 1; Chapter 2 
B)  Chapter 7; Chapter 12 
C)  Chapter 7; Chapter 11 
D)  Chapter 11; Chapter 17

Question 14

The preferred stock ________.

Accepted Answer

A)  is a large part of the financial system in terms of a source of new financing. 
B)  has historically been issued largely by utilities, accounting for more than half of each year's issuance. 
C)  has been primarily issued by young growth companies. 
D)  All of these 
A)  is a large part of the financial system in terms of a source of new financing. 
B)  has historically been issued largely by utilities, accounting for more than half of each year's issuance. 
C)  has been primarily issued by young growth companies. 
D)  All of these

Question 15

There are three types of deferred coupon structures: (1) deferred-interest bonds, (2) step-up bonds, and (3) payment-in-kind bonds. Describe two of these three types.

Accepted Answer

Deferred-interest bonds are the most com

Question 16

The Eurobond sector of the global bond market includes bonds with a number of distinguishing features. Name three of these features.

Accepted Answer

The Eurobond sector of the global bond m

Question 17

There are five types of electronic corporate bond trading systems. Describe two of these five types.

Accepted Answer

There are five types of electronic corpo

Question 18

Chapter 11 of the act deals with the reorganization of a company, and Chapter 7 deals with the dividend policy of a company.

Accepted Answer

A) True 
 B)False

Question 19

Corporate governance issues involve (1) the ownership structure of the corporation, (2) the practices followed by management, and (3) policies for financial disclosure.

Accepted Answer

A) True 
 B)False

Question 20

________ means that all the assets of the corporation will be distributed to holders of claims on the corporation, and no corporate entity will survive.

Accepted Answer

A)  Recapitalization 
B)  Distribution 
C)  Reorganization 
D)  Liquidation 
A)  Recapitalization 
B)  Distribution 
C)  Reorganization 
D)  Liquidation

Exam 20: Markets for Corporate Senior Instruments: II

High-yield bonds ________.

There are various types of preferred stock but fixed-rate is not one these types.

When a company is liquidated, creditors receive distributions based on the absolute priority rule to the extent assets are available.

Which of the below statements is FALSE?

Most corporate bonds are ________; that is, they run for a term of years, and then ________.

The four general classifications used by bond information services are: ________.

The ________ does not attempt to precisely predict a given level of recovery, but rather offer ratings that are in the form of an ordinal scale.

Which of the below statements is FALSE?

Preferred stock has no important similarities with debt.

Features of a corporate bond include ________.

Payments made to preferred stockholders are treated as a distribution of earnings and therefore are not tax deductible to the issuing corporation.

One of the four general classifications used by bond information includes the class called "utilities," which can be further broken down into ________.

________ of the bankruptcy act deals with the liquidation of a company; ________ covers reorganization.

The preferred stock ________.

There are three types of deferred coupon structures: (1) deferred-interest bonds, (2) step-up bonds, and (3) payment-in-kind bonds. Describe two of these three types.

The Eurobond sector of the global bond market includes bonds with a number of distinguishing features. Name three of these features.

There are five types of electronic corporate bond trading systems. Describe two of these five types.

Chapter 11 of the act deals with the reorganization of a company, and Chapter 7 deals with the dividend policy of a company.

Corporate governance issues involve (1) the ownership structure of the corporation, (2) the practices followed by management, and (3) policies for financial disclosure.

________ means that all the assets of the corporation will be distributed to holders of claims on the corporation, and no corporate entity will survive.

Introduction

Financial Institutions, Financial Intermediaries, and Asset Management Firms

Depository Institutions: Activities and Characteristics

The U.S. Federal Reserve and the Creation of Money

Monetary Policy in the United States

Insurance Companies

Investment Companies and Exchange Traded Funds

Pension Funds

Properties and Pricing of Financial Assets

The Level and Structure of Interest Rates

The Term Structure of Interest Rates

Risk/Return and Asset Pricing Models

Primary Markets and the Underwriting of Securities

Secondary Markets

Treasury and Agency Securities Markets

Municipal Securities Markets

Markets for Common Stock: The Basic Characteristics

Markets for Common Stock: Structure and Organization

Markets for Corporate Senior Instruments: I

The Markets for Bank Obligations

The Residential Mortgage Market

Mortgage-Backed Securities Market

Market for Commercial Mortgage Loans and Commercial Mortgage-Backed Securities

Market for Asset-Backed Securities

Financial Futures Markets

Options Markets

Pricing of Futures and Options Contracts

The Applications of Futures and Options Contracts

OTC Interest Rate Derivatives: Forward Rate Agreements, Swaps, Caps, and Floors

Market for Credit Risk Transfer Vehicles: Credit Derivatives and Collateralized Debt Obligations

The Market for Foreign Exchange and Risk Control Instruments

Filters

Most corporate bonds are ; that is, they run for a term of years, and then .

of the bankruptcy act deals with the liquidation of a company; covers reorganization.