Question 1

Which of the following features (if any) of debt securities provides the investor with a measure of protection against inflation?

Accepted Answer

A) sinking fund 
B) call feature 
C) floating coupon rates 
D) poison put covenant 
A) sinking fund 
B) call feature 
C) floating coupon rates 
D) poison put covenant C

Question 2

List the restrictions that an indenture places on the borrower of long-term debt.

Accepted Answer

1. It thoroughly details the nature of the debt issue.
2.It specifies the manner in which the principal must be repaid.
3.It lists any covenants that are placed on the borrower. Among these are:
a.a minimum interest coverage ratio that must be maintained.
b.A minimum level of working capital that must be maintained.
c.The maximum amount of dividends that the firm can pay on its preferred and common stock.
d.Restrictions on further leasing or borrowing that the firm may utilize.

Question 3

Users of preferred stock include:

Accepted Answer

A) Utility companies 
B) Acquiring firm in mergers and acquisitions 
C) Large commercial banks 
D) All listed answers are users 
A) Utility companies 
B) Acquiring firm in mergers and acquisitions 
C) Large commercial banks 
D) All listed answers are users D

Question 4

What is a "payment­in­kind" bond and why is it considered a "weak security"?

Accepted Answer

PIK bonds allow a cash-strapped company

Question 5

Baywa has an outstanding bond that has a coupon rate of 8.3%.What is the market price of this bond if it pays interest semi-annually, has 15 years to maturity, and the current required rate of return is 9% on bonds of similar quality?

Accepted Answer

A) $943 
B) $1059 
C) $954 
D) $1,000 
A) $943 
B) $1059 
C) $954 
D) $1,000

Question 6

The following bond quotation indicates that the holder expects to receive in interest annually:
$$\begin{array} { l l l l l l } 
\text { PACEI } & 11 \text { s 09 } & 11.6 & 20 & 95 & - 1
\end{array}$$

Accepted Answer

A) $90 
B) $116 
C) $95 
D) $110 
A) $90 
B) $116 
C) $95 
D) $110

Question 7

Grace Corp.has a zero-coupon bond outstanding that matures in 15 years.This bond is selling for $327.50 today and will pay $1,000 at maturity.What is the yield to maturity to the investor who buys the bond and holds it until maturity?

Accepted Answer

A) 7.73% 
B) 9.33% 
C) 9.23% 
D) 9.77% 
A) 7.73% 
B) 9.33% 
C) 9.23% 
D) 9.77%

Question 8

How many semiannual interest payments remain on a bond that is selling for $917.25? The coupon rate of the bond is 8 percent, interest is payable semiannually, and the current market rate of return on a similar risk bond is 10 percent.

Accepted Answer

A) 5 
B) 10 
C) 11 
D) 7 
A) 5 
B) 10 
C) 11 
D) 7

Question 9

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 10

The length of time that an investor keeps an asset is called:

Accepted Answer

A) the retention period 
B) the holding period 
C) the maintenance period 
D) none of the answers listed is correct. 
A) the retention period 
B) the holding period 
C) the maintenance period 
D) none of the answers listed is correct.

Question 11

Which of the following is NOT one of the various types of long-term debt?

Accepted Answer

A) Junior debentures 
B) Secured loans 
C) Senior debentures 
D) Preferred stock 
A) Junior debentures 
B) Secured loans 
C) Senior debentures 
D) Preferred stock

Question 12

If a firm could sell a mortgage bond at an 8% interest rate, it could sell an otherwise identical debenture at

Accepted Answer

A) a rate less than 8% 
B) 8% 
C) a rate greater than 8% 
D) cannot be determined 
A) a rate less than 8% 
B) 8% 
C) a rate greater than 8% 
D) cannot be determined

Question 13

The call feature of a long-term bond

Accepted Answer

A) is an optional retirement provision 
B) states the call price 
C) allows the issuer to replace a high coupon bond with one with a lower coupon bond 
D) all these are correct 
A) is an optional retirement provision 
B) states the call price 
C) allows the issuer to replace a high coupon bond with one with a lower coupon bond 
D) all these are correct

Question 14

The principal disadvantage of preferred stock financing is

Accepted Answer

A) its high after-tax cost as compared with long-term debt 
B) the decrease in the firm's degree of financial leverage 
C) the required payment of dividends 
D) the reduction in control 
A) its high after-tax cost as compared with long-term debt 
B) the decrease in the firm's degree of financial leverage 
C) the required payment of dividends 
D) the reduction in control

Question 15

"Junk bond" is a term used to describe a bond that

Accepted Answer

A) is in default 
B) is rated Ba or lower 
C) is currently paying interest 
D) has been downgraded by Moody's 
A) is in default 
B) is rated Ba or lower 
C) is currently paying interest 
D) has been downgraded by Moody's

Question 16

What is the collateral used in collateral trust bonds and who is its primary user?

Accepted Answer

Collateral trust bonds are backed by sto

Question 17

WXAM has an outstanding bond issue with a coupon rate of 6 1/8%, and a current yield of 6.9%.The yield to maturity on this bond is 7 5/8%.What is the market price of this bond if it pays interest semi-annually and has 12 years to maturity?

Accepted Answer

A) $883.42 
B) $937.45 
C) $943.65 
D) $1000.00 
A) $883.42 
B) $937.45 
C) $943.65 
D) $1000.00

Question 18

An Exxon bond carries an 8 percent coupon, pays interest semiannually, and has 10 years to maturity.If this bond is currently selling for $925, what is the exact yield to maturity (to the nearest tenth of 1 percent)?

Accepted Answer

A) 9.2% 
B) 8.8% 
C) 9.8% 
D) 10.2% 
A) 9.2% 
B) 8.8% 
C) 9.8% 
D) 10.2%

Question 19

____ 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 20

Explain a sinking fund.

Accepted Answer

Lenders require that the borrowing compa

Exam 6: Fixed-Income Securities: Characteristics and Valuation

Which of the following features (if any) of debt securities provides the investor with a measure of protection against inflation?

List the restrictions that an indenture places on the borrower of long-term debt.

Users of preferred stock include:

What is a "payment­in­kind" bond and why is it considered a "weak security"?

Baywa has an outstanding bond that has a coupon rate of 8.3%.What is the market price of this bond if it pays interest semi-annually, has 15 years to maturity, and the current required rate of return is 9% on bonds of similar quality?

The following bond quotation indicates that the holder expects to receive in interest annually: PACEI 11 s 09 11.6 20 95 -1

Grace Corp.has a zero-coupon bond outstanding that matures in 15 years.This bond is selling for $327.50 today and will pay $1,000 at maturity.What is the yield to maturity to the investor who buys the bond and holds it until maturity?

How many semiannual interest payments remain on a bond that is selling for $917.25? The coupon rate of the bond is 8 percent, interest is payable semiannually, and the current market rate of return on a similar risk bond is 10 percent.

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

The length of time that an investor keeps an asset is called:

Which of the following is NOT one of the various types of long-term debt?

If a firm could sell a mortgage bond at an 8% interest rate, it could sell an otherwise identical debenture at

The call feature of a long-term bond

The principal disadvantage of preferred stock financing is

"Junk bond" is a term used to describe a bond that

What is the collateral used in collateral trust bonds and who is its primary user?

WXAM has an outstanding bond issue with a coupon rate of 6 1/8%, and a current yield of 6.9%.The yield to maturity on this bond is 7 5/8%.What is the market price of this bond if it pays interest semi-annually and has 12 years to maturity?

An Exxon bond carries an 8 percent coupon, pays interest semiannually, and has 10 years to maturity.If this bond is currently selling for $925, what is the exact yield to maturity (to the nearest tenth of 1 percent)?

____ are not secured by specific assets.

Explain a sinking fund.

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

A: The Time Value of Money

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Capital Budgeting: Decision Criteria and Real Option Considerations

A: Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital, Capital Structure, and Dividend Policy

Capital Structure Concepts

Capital Structure Management in Practice

A: Capital Structure Management in Practice

Dividend Policy

Working Capital Management

The Management of Cash and Marketable Securities

The Management of Accounts Receivable and Inventories

Lease and Intermediate-Term Financing

Financing with Derivatives

A: Financing with Derivatives

Risk Management

International Financial Management

Corporate Restructuring

Filters

What is a "paymentinkind" bond and why is it considered a "weak security"?