Exam 19: Corporate Bond Pricing, Market Development, and Financing Strategies

In February 2007 the average maturity of commercial and industrial loans with maturities exceeding one year averaged 5 ½ years.

The majority of corporate bond issues today contain securities which mature on single date; by definition then, such bonds are:

Rising interest rates usually lead to an expanded volume of business investment, according to your text, because periods of rising rates soon lead to greater business profits and therefore more funds available for investment purposes.

Zero-coupon bonds pay no interest.

Private placements of corporate bonds generally exceed the volume of public sales of such bonds.

A flexible prime interest rate benefits banks by helping to protect their interest margins; it benefits borrowers because more credit is readily available.

Mergers and acquisitions (M&A) have been on the increase in recent decades due, in part, to a more lenient antitrust policy adopted by federal regulators that reduces the government challenges to M&A.

A bond with attached warrants that allows an investor to purchase at par the issuing company's stock is referred to as a(n):

Medium-term notes (MTN), carrying maturities of ______, were used as far back as the 1970s, but literally exploded onto the corporate fund-raising scene in the past 25 years, emerging as a major funding tool.

The major contribution of the SEC's Rule 144A was to:

A security aimed at granting a business firm more time to improve its credit rating or time to correct cash shortages is known as a reset bond.

Silsbee Corporation, bearing a BB rating, is considering the public sale of $72 million in new corporate notes bearing 7-year maturities at an expected gross yield of 8.95 percent later this month. The company needs about $260 million in total but is hoping to raise the difference in its total financial need and the note offering by drawing upon other sources of funds. However, it does have an alternative offer of a private note sale to a small consortium of insurance companies at an expected gross yield of 9.04 percent. Silsbee's financial manager is trying to assess the potential advantages and disadvantages of each of these two approaches to raising medium-term capital funds. Using the information presented in this chapter please develop a list of possible benefits and costs of a public sale versus a private sale to help Silsbee's manager weigh the two options available to the company and reach a decision.

Medium-term notes have become popular in recent years because they make it easier for corporations to match the maturity of assets they wish to acquire with the maturity of their liabilities.

The requirement in a bank loan agreement that obligates a borrower to keep a deposit at the lending bank equal to a specified percentage of the amount of the loan is known as the:

Between 1993 and 2005 outstanding medium-term notes (MTN) increased from $210 billion to nearly:

What are the principal types of risk that investment bankers take on? What factors must an investment banker consider in pricing a new corporate bond issue?

The recent global credit crisis has shown that asset backed securities may have some very large drawbacks.

A corporate debt security whose interest rate is tied to stock-market trends is known as a:

Medium-term notes (MTN), carrying maturities of one to 10 years, were used as far back as the 1970s, but literally exploded onto the corporate fund-raising scene in the past 25 years, emerging as a major funding total.

A corporate debt contract with an original maturity of five years or less is called a: