Exam 2: Financial Assets Instruments

An option is a contract which gives its holder the right to buy (sell)an asset at a predetermined price within a specified period of time.

Other things held constant,if a bond indenture contains a call provision,the yield to maturity that would exist without such a call provision will generally be ____ the YTM with it.

Bond ratings of ____ and higher are considered investment grade.

A zero coupon bond's value increases over time at a compounded (or exponential)rate,not at a constant (or linear)rate.The corporate issuer reports the annual increase as interest expense,and the owner of the bond reports the increase as interest income and pays taxes on it each year.

Which of the following is not an advantage of a term loan over public debt offerings?

The striking price is different from the exercise price and deals with convertibles rather than with warrants.

From a social welfare perspective,common stock is a desirable form of financing in part because it involves no fixed charge payments.Its inclusion in a firm's capital structure makes the firm less vulnerable to the consequences of unanticipated declines in sales and earnings than if only debt were available.

Par value is not necessarily the actual price at which common stock is issued by the firm,but it does constitute the maximum legal liability per share in the event of bankruptcy.

Current liabilities are liabilities that must be paid during the next twelve months.

A putable bond can be redeemed at par value at the holder's option.Usually,the put option can be exercised only if the issuer takes some specific action,such as significantly increasing debt.

The terms and conditions to which a bond is subject are set forth in its