Question 1

Eurobonds have a higher level of required disclosure than normally applies to bonds issued in domestic markets, particularly in the United States.

Accepted Answer

A) True 
 B)False

Question 2

A call provision gives bondholders the right to demand, or "call for," the repayment of a bond. Typically, calls are exercised if interest rates rise, because when rates rise the bondholder can get the principal amount back and reinvest it elsewhere at higher rates.

Accepted Answer

A) True 
 B)False

Question 3

The conversion ratio is:

Accepted Answer

A) the number of new lower coupon rate bonds that the bondholder receives when old bonds are converted into the newer bonds. 
B) the ratio of the face value of the bond to its market value. 
C) the number of shares of stock that the bondholder receives upon conversion of a bond. 
D) the ratio of the bond's old face value to its new face value. 
E) the number of bonds in the company's new project received upon expansion. 
A) the number of new lower coupon rate bonds that the bondholder receives when old bonds are converted into the newer bonds. 
B) the ratio of the face value of the bond to its market value. 
C) the number of shares of stock that the bondholder receives upon conversion of a bond. 
D) the ratio of the bond's old face value to its new face value. 
E) the number of bonds in the company's new project received upon expansion.

Question 4

Which of the following ratings by Moody's is given to the bonds of companies that have the best credit risk?

Accepted Answer

A) Caa 
B) Aaa 
C) B 
D) Ba 
E) A 
A) Caa 
B) Aaa 
C) B 
D) Ba 
E) A

Question 5

LIBOR is the acronym for London Interbank Offer Rate, which is an average of interest rates offered by London banks to U.S. corporations.

Accepted Answer

A) True 
 B)False

Question 6

Cold Boxes Corporation has 100 bonds outstanding with a maturity value of $1,000. The required rate of return on these bonds is currently 10 percent, and interest is paid semiannually. The bonds mature in 5 years, and their current market value is $768 per bond. Which of the following is the annual coupon interest rate?

Accepted Answer

A) 8% 
B) 6% 
C) 4% 
D) 2% 
E) 0% 
A) 8% 
B) 6% 
C) 4% 
D) 2% 
E) 0%

Question 7

If Standard & Poor's ratings of a firm's bonds is below BBB, the _____.

Accepted Answer

A) firm will find it difficult to find potential investors when issuing new bonds 
B) default risk premium associated with the bonds will be less than the risk premium associated with bonds rated AAA 
C) firm will easily find investors when issuing new bonds because bonds with high yields have no risk associated with them 
D) default risk associated with the bonds is less than that of bonds that are rated AAA 
E) firm will immediately have to exercise the call provision and issue new bonds 
A) firm will find it difficult to find potential investors when issuing new bonds 
B) default risk premium associated with the bonds will be less than the risk premium associated with bonds rated AAA 
C) firm will easily find investors when issuing new bonds because bonds with high yields have no risk associated with them 
D) default risk associated with the bonds is less than that of bonds that are rated AAA 
E) firm will immediately have to exercise the call provision and issue new bonds

Question 8

Regardless of the size of the coupon payment, the price of a bond moves in the opposite direction to interest rate movements. For example, if interest rates rise, bond prices fall.

Accepted Answer

A) True 
 B)False

Question 9

Bonds issued by BB&C Communications that have a coupon rate of interest equal to 10.65 percent currently have a yield to maturity (YTM) equal to 15.25 percent. Based on this information, it is understood that BB&C's bonds must currently be selling at _____ in the financial markets.

Accepted Answer

A) the par value 
B) a discount 
C) a premium 
D) the inflation adjusted interest rate 
E) a floating interest rate 
A) the par value 
B) a discount 
C) a premium 
D) the inflation adjusted interest rate 
E) a floating interest rate

Question 10

A change in market conditions causes the market price of a bond to change because of changes in the bond's:

Accepted Answer

A) coupon rate. 
B) current (interest) yield. 
C) yield to maturity. 
D) principal value. 
E) maturity value. 
A) coupon rate. 
B) current (interest) yield. 
C) yield to maturity. 
D) principal value. 
E) maturity value.

Question 11

Which of the following statements about a bond that sells for its par value is correct?

Accepted Answer

A) The yield to maturity is comprised of a capital gains yield equal to the face value of the bond. 
B) As long as market rates remain constant, the bond's capital gains yield will equal to zero. 
C) The yield to maturity is comprised of an interest yield equal to the capital yield on the bond. 
D) The yield to maturity is equal to the present value of interest payments received from the bond. 
E) The yield to maturity is equal to the future value of interest payments received from the bond. 
A) The yield to maturity is comprised of a capital gains yield equal to the face value of the bond. 
B) As long as market rates remain constant, the bond's capital gains yield will equal to zero. 
C) The yield to maturity is comprised of an interest yield equal to the capital yield on the bond. 
D) The yield to maturity is equal to the present value of interest payments received from the bond. 
E) The yield to maturity is equal to the future value of interest payments received from the bond.

Question 12

_____ bonds are high-risk, high-yield bonds that are often used to finance mergers, leveraged buyouts, and troubled companies.

Accepted Answer

A) Callable 
B) Junk 
C) Convertible 
D) Floating-rate 
E) Putable 
A) Callable 
B) Junk 
C) Convertible 
D) Floating-rate 
E) Putable

Question 13

A debt is said to be selling at par when:

Accepted Answer

A) investors' required rate of return from debt is greater than the coupon rate. 
B) the market rate of return is more than the coupon rate of return. 
C) the borrower pays the interest at the maturity of the debt. 
D) the current market price of the debt is more than the face value of the debt. 
E) the market value is equal to the face value of the debt. 
A) investors' required rate of return from debt is greater than the coupon rate. 
B) the market rate of return is more than the coupon rate of return. 
C) the borrower pays the interest at the maturity of the debt. 
D) the current market price of the debt is more than the face value of the debt. 
E) the market value is equal to the face value of the debt.

Question 14

A debt is said to be selling at par, when the _____ of the debt is equal to the _____.

Accepted Answer

A) par value; discounted value of the interest payments 
B) principal value; discount on the issue of a zero coupon bond 
C) face value; premium payment on the exercise of a call provision 
D) market value; face value of the debt 
E) maturity value; par value of the debt 
A) par value; discounted value of the interest payments 
B) principal value; discount on the issue of a zero coupon bond 
C) face value; premium payment on the exercise of a call provision 
D) market value; face value of the debt 
E) maturity value; par value of the debt

Question 15

Bonds issued by BB&C Communications that have a coupon rate of interest equal to 10 percent currently have a yield to maturity (YTM) equal to 8 percent. Based on this information, it is understood that BB&C's bonds must currently be selling at a premium in the financial markets.

Accepted Answer

A) True 
 B)False

Question 16

A bond that pays no annual interest but is sold at a discount below its par value is called a:

Accepted Answer

A) mortgage bond. 
B) callable bond. 
C) convertible bond. 
D) putable bond. 
E) zero coupon bond. 
A) mortgage bond. 
B) callable bond. 
C) convertible bond. 
D) putable bond. 
E) zero coupon bond.

Question 17

Call provisions on corporate bonds are generally included to protect the issuer against large increases in interest rates. They affect the actual maturity of the bond but not its price.

Accepted Answer

A) True 
 B)False

Question 18

An increase in interest rates will help increase the future value of a portfolio because the cash flows produced by the portfolio:

Accepted Answer

A) will increase the maturity value of the bond. 
B) can be reinvested at higher rates of return. 
C) can be used to recall high-rate bonds. 
D) will generate cash to pay future coupon interest. 
E) will decrease the yield to maturity of the bond. 
A) will increase the maturity value of the bond. 
B) can be reinvested at higher rates of return. 
C) can be used to recall high-rate bonds. 
D) will generate cash to pay future coupon interest. 
E) will decrease the yield to maturity of the bond.

Question 19

Eurocredits are bank loans that are denominated in the currency of a country other than where the lending bank is located.

Accepted Answer

A) True 
 B)False

Question 20

Revenue bonds are used to:

Accepted Answer

A) raise funds to repay loans borrowed from the federal government. 
B) raise funds for projects that generate revenues that will contribute to payment of interest and the repayment of debt. 
C) raise funds to pay interest on T-bills issued by the state government. 
D) raise funds to repay the interest and principal on loans borrowed from the local government. 
E) raise funds for projects that require additional funding by increasing tax rates. 
A) raise funds to repay loans borrowed from the federal government. 
B) raise funds for projects that generate revenues that will contribute to payment of interest and the repayment of debt. 
C) raise funds to pay interest on T-bills issued by the state government. 
D) raise funds to repay the interest and principal on loans borrowed from the local government. 
E) raise funds for projects that require additional funding by increasing tax rates.

Eurobonds have a higher level of required disclosure than normally applies to bonds issued in domestic markets, particularly in the United States.

A call provision gives bondholders the right to demand, or "call for," the repayment of a bond. Typically, calls are exercised if interest rates rise, because when rates rise the bondholder can get the principal amount back and reinvest it elsewhere at higher rates.

The conversion ratio is:

Which of the following ratings by Moody's is given to the bonds of companies that have the best credit risk?

LIBOR is the acronym for London Interbank Offer Rate, which is an average of interest rates offered by London banks to U.S. corporations.

If Standard & Poor's ratings of a firm's bonds is below BBB, the _____.

Regardless of the size of the coupon payment, the price of a bond moves in the opposite direction to interest rate movements. For example, if interest rates rise, bond prices fall.

Bonds issued by BB&C Communications that have a coupon rate of interest equal to 10.65 percent currently have a yield to maturity (YTM) equal to 15.25 percent. Based on this information, it is understood that BB&C's bonds must currently be selling at _____ in the financial markets.

A change in market conditions causes the market price of a bond to change because of changes in the bond's:

Which of the following statements about a bond that sells for its par value is correct?

_____ bonds are high-risk, high-yield bonds that are often used to finance mergers, leveraged buyouts, and troubled companies.

A debt is said to be selling at par when:

A debt is said to be selling at par, when the _ of the debt is equal to the _.

Bonds issued by BB&C Communications that have a coupon rate of interest equal to 10 percent currently have a yield to maturity (YTM) equal to 8 percent. Based on this information, it is understood that BB&C's bonds must currently be selling at a premium in the financial markets.

A bond that pays no annual interest but is sold at a discount below its par value is called a:

Call provisions on corporate bonds are generally included to protect the issuer against large increases in interest rates. They affect the actual maturity of the bond but not its price.

An increase in interest rates will help increase the future value of a portfolio because the cash flows produced by the portfolio:

Eurocredits are bank loans that are denominated in the currency of a country other than where the lending bank is located.

Revenue bonds are used to:

An Overview of Managerial Finance

Analysis of Financial Statements

The Financial Environment: Markets, Institutions, and Investment Banking

Time Value of Money

The Cost of Money Interest Rates

Stocks Equity Characteristics and Valuation

Risk and Rates of Return

Capital Budgeting Techniques

Project Cash Flows and Risk

The Cost of Capital

Capital Structure

Distribution of Retained Earnings: Dividends and Stock Repurchases

Managing Short-Term Financing Liabilities

Managing Short-Term Assets

Financial Planning and Control

Filters

Exam 6: Bonds Debt Characteristics and Valuation

Eurobonds have a higher level of required disclosure than normally applies to bonds issued in domestic markets, particularly in the United States.

A call provision gives bondholders the right to demand, or "call for," the repayment of a bond. Typically, calls are exercised if interest rates rise, because when rates rise the bondholder can get the principal amount back and reinvest it elsewhere at higher rates.

The conversion ratio is:

Which of the following ratings by Moody's is given to the bonds of companies that have the best credit risk?

LIBOR is the acronym for London Interbank Offer Rate, which is an average of interest rates offered by London banks to U.S. corporations.

If Standard & Poor's ratings of a firm's bonds is below BBB, the _____.

Regardless of the size of the coupon payment, the price of a bond moves in the opposite direction to interest rate movements. For example, if interest rates rise, bond prices fall.

Bonds issued by BB&C Communications that have a coupon rate of interest equal to 10.65 percent currently have a yield to maturity (YTM) equal to 15.25 percent. Based on this information, it is understood that BB&C's bonds must currently be selling at _____ in the financial markets.

A change in market conditions causes the market price of a bond to change because of changes in the bond's:

Which of the following statements about a bond that sells for its par value is correct?

_____ bonds are high-risk, high-yield bonds that are often used to finance mergers, leveraged buyouts, and troubled companies.

A debt is said to be selling at par when:

A debt is said to be selling at par, when the _____ of the debt is equal to the _____.

Bonds issued by BB&C Communications that have a coupon rate of interest equal to 10 percent currently have a yield to maturity (YTM) equal to 8 percent. Based on this information, it is understood that BB&C's bonds must currently be selling at a premium in the financial markets.

A bond that pays no annual interest but is sold at a discount below its par value is called a:

Call provisions on corporate bonds are generally included to protect the issuer against large increases in interest rates. They affect the actual maturity of the bond but not its price.

An increase in interest rates will help increase the future value of a portfolio because the cash flows produced by the portfolio:

Eurocredits are bank loans that are denominated in the currency of a country other than where the lending bank is located.

Revenue bonds are used to:

An Overview of Managerial Finance

Analysis of Financial Statements

The Financial Environment: Markets, Institutions, and Investment Banking

Time Value of Money

The Cost of Money Interest Rates

Stocks Equity Characteristics and Valuation

Risk and Rates of Return

Capital Budgeting Techniques

Project Cash Flows and Risk

The Cost of Capital

Capital Structure

Distribution of Retained Earnings: Dividends and Stock Repurchases

Managing Short-Term Financing Liabilities

Managing Short-Term Assets

Financial Planning and Control

Filters

A debt is said to be selling at par, when the _ of the debt is equal to the _.