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

The 1999 Financial Services Modernization (Gramm-Leach-Bliley) Act gave U.S. commercial banks greater freedom to underwrite corporate bonds and stock through holding companies.

Using the the description or the definition below, identify each of the key terms and concepts presented in this chapter a. Long-term corporate debt secured by a lien on specific assets of the issuing firm. b. Debt instrument issued by a local government to aid a private company. c. Long-term corporate debt obligations typically sold at a price below par and without any specific promised interest payments. d. When securities are sold in the open market, usually through investment bankers.

Commercial banks have begun to make longer-term commercial mortgage loans with a 5 to 7-year maturity range known as "mini-perms."

A provision in a bond indenture aimed at protecting the interests of bondholders that may restrict the issuing corporation's dividend rate, the taking on of added debt or limit the sale of the company's assets is known as a:

Debt securities that grant the issuing corporation the option of either paying the interest owed or issuing additional bonds are called:

A short-term unsecured corporate IOU underwritten by a group of banks and sold in overseas markets is called a Euro note.

Payment-in-kind bonds grant the issuing firm the options of either paying interest owed on the bonds or calling in those bonds and retiring them.

The most active foreign investors in the U.S. bond markets are from:

Financial corporations have issued the lion's share, almost 50%, of medium-term notes outstanding.

Most business borrowers in the private placement market are medium-size corporations.

Securities with maturities ranging from one to 10 years that are generally noncallable, unsecured, fixed-rate obligations are known as:

A corporation issues a bond with a before-tax annual cost to the company of 12.5 percent. This corporation has a marginal tax rate (bracket) of 30 percent. What is the after-tax cost of this bond?

In 2001, as corporate bond rates dropped to some of the lowest levels seen in decades, several of the largest corporate debt offerings in history quickly came to market.

Junk bonds are unsecured debt obligations with low credit ratings and low yields relative to higher-rated securities.

Most of the borrowers in the private placement market for corporate bonds are:

The larger and longer-term a business loan is, the more likely its rate will float with market conditions.

Between 1995 and 2009 the total value of bonds outstanding issued by U.S. financial and nonfinancial companies increased from $2.5 trillion to close to:

In a leveraged buyout a business firm is acquired by one or a small group of investors with 80 to 90 percent of the purchase price covered by borrowing.

Stock retirements, due to a merger, acquisitions, and buybacks, exceeded 130 billion in 2001 and for the 12 month period ending June 2006 exceeded:

The after-tax cost of debt to a corporation is less than the after-tax cost of equity because: