Question 1

A callable bond with the call price set equal to the present value of the bond's remaining payments is a

Accepted Answer

A)  convertible bond. 
B)  straight bond. 
C)  par call. 
D)  Yankee call. 
E)  Canada call. 
A)  convertible bond. 
B)  straight bond. 
C)  par call. 
D)  Yankee call. 
E)  Canada call.

Question 2

Bonds issued by a foreign company in a local market,intended for local investors,and denominated in the local currency are known as

Accepted Answer

A)  domestic bonds. 
B)  Yankee bonds. 
C)  Eurobonds. 
D)  foreign bonds. 
E)  global bonds. 
A)  domestic bonds. 
B)  Yankee bonds. 
C)  Eurobonds. 
D)  foreign bonds. 
E)  global bonds.

Question 3

Alberta Energy issues $110 million in straight bonds at par with a coupon rate of 8%.The firm also pays underwriting fees of 1.5% on the face value of the bonds.What are the net proceeds to Alberta Energy from the bond issue?

Accepted Answer

A)  $99.55 million 
B)  $110 million 
C)  $108.35 million 
D)  $101.2 million 
E)  $99.68 million 
A)  $99.55 million 
B)  $110 million 
C)  $108.35 million 
D)  $101.2 million 
E)  $99.68 million

Question 4

Why do the issuers of bonds seek to increase the strength and number of covenants in a bond agreement?

Accepted Answer

A)  Covenants favour the equity holders that managers work for. 
B)  Covenants can increase the flexibility of the company issuing the bond. 
C)  Covenants lower the interest rate investors will require to buy the bond. 
D)  Covenants force the company to renegotiate the terms of the bond if they are broken. 
E)  Covenants increase a firm's default risk. 
A)  Covenants favour the equity holders that managers work for. 
B)  Covenants can increase the flexibility of the company issuing the bond. 
C)  Covenants lower the interest rate investors will require to buy the bond. 
D)  Covenants force the company to renegotiate the terms of the bond if they are broken. 
E)  Covenants increase a firm's default risk.

Question 5

What is the difference between secured and unsecured debt?

Accepted Answer

With unsecured debt,in the event of a ba

Question 6

A firm issues the convertible debt shown above.The price of stock in this company on July 1,2008 is $28.20.What is the minimum conversion ratio that would make a bondholder prefer to convert rather than accept the call price?

Accepted Answer

A)  32 shares per $1000 principal amount 
B)  35 shares per $1000 principal amount 
C)  37 shares per $1000 principal amount 
D)  41 shares per $1000 principal amount 
E)  45 shares per $1000 principal amount 
A)  32 shares per $1000 principal amount 
B)  35 shares per $1000 principal amount 
C)  37 shares per $1000 principal amount 
D)  41 shares per $1000 principal amount 
E)  45 shares per $1000 principal amount

Question 7

Which of the following is an advantage of a public bond issue over private placement?

Accepted Answer

A)  It can be tailored to the particular situation. 
B)  It is less costly to issue. 
C)  It does not need to be registered with the securities commission. 
D)  It is freely tradable on the bond market. 
E)  It is sold to a small group of investors. 
A)  It can be tailored to the particular situation. 
B)  It is less costly to issue. 
C)  It does not need to be registered with the securities commission. 
D)  It is freely tradable on the bond market. 
E)  It is sold to a small group of investors.

Question 8

Which of the following statements concerning the use of sinking funds to repurchase a bond issue is most correct?

Accepted Answer

A)  The firm makes a single payment into a sinking fund administered by a trustee at the beginning of the life of the bond. 
B)  The firm can reduce the amount of outstanding debt without affecting the cash flows of the remaining bonds. 
C)  Payments into the sinking fund are held in reserve to protect the firm from default. 
D)  Bonds can be issued with a sinking fund provision or a call provision, but not both. 
E)  Sinking fund provisions require the issuer to repay the entire principal balance on the maturity date. 
A)  The firm makes a single payment into a sinking fund administered by a trustee at the beginning of the life of the bond. 
B)  The firm can reduce the amount of outstanding debt without affecting the cash flows of the remaining bonds. 
C)  Payments into the sinking fund are held in reserve to protect the firm from default. 
D)  Bonds can be issued with a sinking fund provision or a call provision, but not both. 
E)  Sinking fund provisions require the issuer to repay the entire principal balance on the maturity date.

Question 9

Which of the following statements regarding a call provision is most accurate?

Accepted Answer

A)  The issuer can repurchase a fraction of the outstanding bonds in the market or it can make a tender offer for the entire issue. 
B)  A call provision allows the issuer to repurchase the bonds at the market price. 
C)  The call price is generally set at or below, and expressed as a percentage of, the bond's face value. 
D)  A call feature forces the issuer of the bond to retire all outstanding bonds on (or after) a specific date for the call price if the call price exceeds the market price. 
E)  A call feature gives the bondholder the option to convert each bond owned into a fixed number of shares of common stock. 
A)  The issuer can repurchase a fraction of the outstanding bonds in the market or it can make a tender offer for the entire issue. 
B)  A call provision allows the issuer to repurchase the bonds at the market price. 
C)  The call price is generally set at or below, and expressed as a percentage of, the bond's face value. 
D)  A call feature forces the issuer of the bond to retire all outstanding bonds on (or after) a specific date for the call price if the call price exceeds the market price. 
E)  A call feature gives the bondholder the option to convert each bond owned into a fixed number of shares of common stock.

Question 10

A bond has a face value of $10,000 and a conversion price of $17.86.The stock is currently trading at $16.30.What is the conversion ratio?

Accepted Answer

A)  330 
B)  487 
C)  500 
D)  560 
E)  614 
A)  330 
B)  487 
C)  500 
D)  560 
E)  614

Question 11

In which of the following situations does the value of a convertible bond exceed the value of straight debt or equity by the greatest amount?

Accepted Answer

A)  when the price of the stock is high 
B)  when the price of the stock is close to the conversion price 
C)  when the price of the stock is low 
D)  when the price of the stock much lower than the conversion price 
E)  when the price of the stock is much higher than the conversion price 
A)  when the price of the stock is high 
B)  when the price of the stock is close to the conversion price 
C)  when the price of the stock is low 
D)  when the price of the stock much lower than the conversion price 
E)  when the price of the stock is much higher than the conversion price

Question 12

The face value of bonds are denominated most commonly in which of the following standard increments?

Accepted Answer

A)  $10 
B)  $100 
C)  $1000 
D)  $10,000 
E)  $100,000 
A)  $10 
B)  $100 
C)  $1000 
D)  $10,000 
E)  $100,000

Question 13

A firm issues $200 million in ten-year bonds with an annual coupon rate of 6%.The firm makes a final payment of $68 million on the tenth and final coupon date.If the firm uses a sinking fund to repurchase some of the bond issue on each coupon payment date,what percentage of the issue must they repurchase each year?

Accepted Answer

A)  10% 
B)  7.2% 
C)  7.33% 
D)  6% 
E)  8% 
A)  10% 
B)  7.2% 
C)  7.33% 
D)  6% 
E)  8%

Question 14

When a callable bond sells at a premium,the likelihood of a call is ________ and the yield to worst is the yield to ________.

Accepted Answer

A)  high, call 
B)  low, call 
C)  low, maturity 
D)  high, maturity 
E)  high, par 
A)  high, call 
B)  low, call 
C)  low, maturity 
D)  high, maturity 
E)  high, par

Question 15

A bond issue that does not trade on the public market but instead is sold to a small group of investors is called a(n)

Accepted Answer

A)  private placement. 
B)  syndicated bond. 
C)  revolving line of credit. 
D)  syndicated bank loan. 
E)  Eurobond. 
A)  private placement. 
B)  syndicated bond. 
C)  revolving line of credit. 
D)  syndicated bank loan. 
E)  Eurobond.

Question 16

A company issues a callable (at par)ten-year,7% coupon bond with annual coupon payments.The bond can be called at par in one year after release or any time after that on a coupon payment date.On release,it has a yield to call of 3.1%.What is the price of this bond per $100 of face value when it is released?

Accepted Answer

A)  $103.78 
B)  $100.00 
C)  $107.00 
D)  $96.36 
E)  $133.10 
A)  $103.78 
B)  $100.00 
C)  $107.00 
D)  $96.36 
E)  $133.10

Question 17

In terms of public offerings of bonds,what is an indenture?

Accepted Answer

A)  a list of the duties of the trust company representing the bondholders' interests 
B)  a memorandum that must be produced to describe the details of a bond offering 
C)  a formal contract that specifies the firm's obligations to the bondholders 
D)  a schedule of the fees charged by the underwriting company 
E)  a registration filing with the securities commission 
A)  a list of the duties of the trust company representing the bondholders' interests 
B)  a memorandum that must be produced to describe the details of a bond offering 
C)  a formal contract that specifies the firm's obligations to the bondholders 
D)  a schedule of the fees charged by the underwriting company 
E)  a registration filing with the securities commission

Question 18

A bond has a face value of $10,000 and a conversion price of $37.74.The stock is currently trading at $38.80.What is the conversion ratio?

Accepted Answer

A)  231 
B)  246 
C)  281 
D)  258 
E)  265 
A)  231 
B)  246 
C)  281 
D)  258 
E)  265

Question 19

A company issues a callable (at par)ten-year coupon bond with annual coupon payments.The bond can be called at par in one year after release or any time after that on a coupon payment date.On release,it has a price of $107 per $100 of face value,and has a yield to call of 3.5%.What is the bond's coupon rate?

Accepted Answer

A)  4.34% 
B)  3.5% 
C)  7.00% 
D)  10.75% 
E)  3.27% 
A)  4.34% 
B)  3.5% 
C)  7.00% 
D)  10.75% 
E)  3.27%

Question 20

Tompkinson's PLC,a British company,issues a bond in Canadian dollars in Canada,intended for Canadian investors.Which of the following best describes this bond?

Accepted Answer

A)  a foreign bond 
B)  a Eurobond 
C)  a global bond 
D)  a Yankee bond 
E)  a Maple bond 
A)  a foreign bond 
B)  a Eurobond 
C)  a global bond 
D)  a Yankee bond 
E)  a Maple bond

Exam 15: Debt Financing

A callable bond with the call price set equal to the present value of the bond's remaining payments is a

Bonds issued by a foreign company in a local market,intended for local investors,and denominated in the local currency are known as

Alberta Energy issues $110 million in straight bonds at par with a coupon rate of 8%.The firm also pays underwriting fees of 1.5% on the face value of the bonds.What are the net proceeds to Alberta Energy from the bond issue?

Why do the issuers of bonds seek to increase the strength and number of covenants in a bond agreement?

What is the difference between secured and unsecured debt?

A firm issues the convertible debt shown above.The price of stock in this company on July 1,2008 is $28.20.What is the minimum conversion ratio that would make a bondholder prefer to convert rather than accept the call price?

Which of the following is an advantage of a public bond issue over private placement?

Which of the following statements concerning the use of sinking funds to repurchase a bond issue is most correct?

Which of the following statements regarding a call provision is most accurate?

A bond has a face value of $10,000 and a conversion price of $17.86.The stock is currently trading at $16.30.What is the conversion ratio?

In which of the following situations does the value of a convertible bond exceed the value of straight debt or equity by the greatest amount?

The face value of bonds are denominated most commonly in which of the following standard increments?

When a callable bond sells at a premium,the likelihood of a call is ________ and the yield to worst is the yield to ________.

A bond issue that does not trade on the public market but instead is sold to a small group of investors is called a(n)

In terms of public offerings of bonds,what is an indenture?

A bond has a face value of $10,000 and a conversion price of $37.74.The stock is currently trading at $38.80.What is the conversion ratio?

Tompkinson's PLC,a British company,issues a bond in Canadian dollars in Canada,intended for Canadian investors.Which of the following best describes this bond?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

Filters

When a callable bond sells at a premium,the likelihood of a call is and the yield to worst is the yield to .