Question 1

When a finance company purchases assets with its own funds and leases them to a lessee for a negotiated long-term period this is called a/an:

Accepted Answer

A)  direct lease. 
B)  sale and lease-back. 
C)  operating lease. 
D)  leveraged lease. 
A)  direct lease. 
B)  sale and lease-back. 
C)  operating lease. 
D)  leveraged lease.

Question 2

A ________ is provided to a business by a financial institution and has a maturity of more than one year.

Accepted Answer

A)  debenture 
B)  mortgage bond 
C)  term loan 
D)  zero-coupon bond 
A)  debenture 
B)  mortgage bond 
C)  term loan 
D)  zero-coupon bond

Question 3

A company issues a long-term debt security with specified interest payments and fixed charges over unpledged assets.What type of security has been issued?

Accepted Answer

A)  Subordinated debt 
B)  Unsecured notes 
C)  Commercial mortgage 
D)  Debenture 
A)  Subordinated debt 
B)  Unsecured notes 
C)  Commercial mortgage 
D)  Debenture

Question 4

Which of the following is NOT an example of a positive debt covenant?

Accepted Answer

A)  The company has to maintain a minimum level of working capital. 
B)  The company is restricted from doing mergers and acquisitions. 
C)  The company has to supply periodic cash flow statements to the lender. 
D)  The company has to supply annual audited statements to the lender. 
A)  The company has to maintain a minimum level of working capital. 
B)  The company is restricted from doing mergers and acquisitions. 
C)  The company has to supply periodic cash flow statements to the lender. 
D)  The company has to supply annual audited statements to the lender.

Question 5

The lender who registers a mortgage as a security for a loan is the:

Accepted Answer

A)  mortgagor. 
B)  mortgagee. 
C)  mortgager. 
D)  mortgage. 
A)  mortgagor. 
B)  mortgagee. 
C)  mortgager. 
D)  mortgage.

Question 6

________ granted by banks generally have maturities of three to 15 years and are often made to finance capital expenditure such as building construction and the purchase of real estate.

Accepted Answer

A)  Debentures 
B)  Mortgage bonds 
C)  Term loans 
D)  Capital leases 
A)  Debentures 
B)  Mortgage bonds 
C)  Term loans 
D)  Capital leases

Question 7

All of the following are examples of long-term debt instruments except:

Accepted Answer

A)  term loans. 
B)  debentures. 
C)  promissory notes. 
D)  bonds. 
A)  term loans. 
B)  debentures. 
C)  promissory notes. 
D)  bonds.

Question 8

If a bond's price is at a discount to face value,it has a:

Accepted Answer

A)  yield below its coupon rate of interest. 
B)  yield equal to its coupon rate of interest. 
C)  yield above its coupon rate. 
D)  decreased risk premium. 
A)  yield below its coupon rate of interest. 
B)  yield equal to its coupon rate of interest. 
C)  yield above its coupon rate. 
D)  decreased risk premium.

Question 9

The price of a bond with a fixed coupon has a/an _______ relationship with the market interest rates.

Accepted Answer

A)  constant 
B)  linear 
C)  varying 
D)  inverse 
A)  constant 
B)  linear 
C)  varying 
D)  inverse

Question 10

A bond is a long-term debt instrument issued directly into the capital markets.

Accepted Answer

A) True 
 B)False

Question 11

Banks often calculate a prime rate lending as they can adjust it more quickly than other reference money market rates.

Accepted Answer

A) True 
 B)False

Question 12

Banks usually charge a/an _______ for any portion of a term loan that has not been drawn down.

Accepted Answer

A)  establishment fee 
B)  service fee 
C)  commitment fee 
D)  term fee 
A)  establishment fee 
B)  service fee 
C)  commitment fee 
D)  term fee

Question 13

A company borrows $75 000 from a bank,to be amortised over five years at 8.5% per annum.The annual instalment is:

Accepted Answer

A)  $12 657.43 
B)  $16 275.00 
C)  $19 032.43 
D)  none of the given answers 
A)  $12 657.43 
B)  $16 275.00 
C)  $19 032.43 
D)  none of the given answers

Question 14

If a company wishes to finance a printing press with a five-year life,it would be advisable to finance it with a/an:

Accepted Answer

A)  overdraft. 
B)  bank bill. 
C)  commercial paper. 
D)  fully drawn advance. 
A)  overdraft. 
B)  bank bill. 
C)  commercial paper. 
D)  fully drawn advance.

Question 15

Which of the following is NOT an example of negative debt covenants?

Accepted Answer

A)  Specifying what activities the business can enter into 
B)  Restrictions on amalgamation with other companies 
C)  Supplying creditors with annual audited reports 
D)  Limiting annual dividend payments to shareholders 
A)  Specifying what activities the business can enter into 
B)  Restrictions on amalgamation with other companies 
C)  Supplying creditors with annual audited reports 
D)  Limiting annual dividend payments to shareholders

Question 16

A term loan is referred to as a fully drawn advance when the borrower obtains the full amount at the start of the loan.

Accepted Answer

A) True 
 B)False

Question 17

One of the advantages of a prime rate set by a financial institution is that it is less likely to be affected by:

Accepted Answer

A)  changes in the bank bill swap rate. 
B)  short-term market illiquidity. 
C)  short-term credit fluctuations. 
D)  all of the given answers. 
A)  changes in the bank bill swap rate. 
B)  short-term market illiquidity. 
C)  short-term credit fluctuations. 
D)  all of the given answers.

Question 18

The fees that represent bank costs in considering loan applications and document preparation are called:

Accepted Answer

A)  commitment fees. 
B)  establishment fees. 
C)  line fees. 
D)  service fees. 
A)  commitment fees. 
B)  establishment fees. 
C)  line fees. 
D)  service fees.

Question 19

Term loans where each periodic loan payment consists of interest payments and then the principal is repaid in full at maturity are:

Accepted Answer

A)  fully drawn advances. 
B)  amortised loans. 
C)  interest-only loans. 
D)  credit foncier loans. 
A)  fully drawn advances. 
B)  amortised loans. 
C)  interest-only loans. 
D)  credit foncier loans.

Question 20

A bond's price will be _______ when the coupon rate is higher than current market interest rates; _______ when the coupon rate is equal to the current market interest rates; and _______ when the coupon rate is less than the current market interest rates.

Accepted Answer

A)  at a premium; equal to the face value; at a discount 
B)  at a premium; at a discount; equal to the face value 
C)  at a discount; at a premium; equal to the face value 
D)  equal to the face value; at a discount; at a premium 
A)  at a premium; equal to the face value; at a discount 
B)  at a premium; at a discount; equal to the face value 
C)  at a discount; at a premium; equal to the face value 
D)  equal to the face value; at a discount; at a premium

Exam 10: Medium-To-Long-Term Debt

When a finance company purchases assets with its own funds and leases them to a lessee for a negotiated long-term period this is called a/an:

A ________ is provided to a business by a financial institution and has a maturity of more than one year.

A company issues a long-term debt security with specified interest payments and fixed charges over unpledged assets.What type of security has been issued?

Which of the following is NOT an example of a positive debt covenant?

The lender who registers a mortgage as a security for a loan is the:

________ granted by banks generally have maturities of three to 15 years and are often made to finance capital expenditure such as building construction and the purchase of real estate.

All of the following are examples of long-term debt instruments except:

If a bond's price is at a discount to face value,it has a:

The price of a bond with a fixed coupon has a/an _______ relationship with the market interest rates.

A bond is a long-term debt instrument issued directly into the capital markets.

Banks often calculate a prime rate lending as they can adjust it more quickly than other reference money market rates.

Banks usually charge a/an _______ for any portion of a term loan that has not been drawn down.

A company borrows $75 000 from a bank,to be amortised over five years at 8.5% per annum.The annual instalment is:

If a company wishes to finance a printing press with a five-year life,it would be advisable to finance it with a/an:

Which of the following is NOT an example of negative debt covenants?

A term loan is referred to as a fully drawn advance when the borrower obtains the full amount at the start of the loan.

One of the advantages of a prime rate set by a financial institution is that it is less likely to be affected by:

The fees that represent bank costs in considering loan applications and document preparation are called:

Term loans where each periodic loan payment consists of interest payments and then the principal is repaid in full at maturity are:

A bond's price will be _______ when the coupon rate is higher than current market interest rates; _______ when the coupon rate is equal to the current market interest rates; and _______ when the coupon rate is less than the current market interest rates.

A Modern Financial System: An Overview

Commercial Banks

Non-Bank Financial Institutions

The Share Market and the Corporation

Corporations Issuing Equity in the Share Market

Investors in the Share Market

Forecasting Share Price Movements

Mathematics of Finance: An Introduction to Basic Concepts and Calculations

Short-Term Debt

International Debt Markets

Government Debt, monetary Policy and the Payments System

An Introduction to Interest Rate Determination and Forecasting

Interest Rate Risk

Foreign Exchange: The Structure and Operation of the Fx Market

Foreign Exchange: Factors That Influence the Exchange Rate

Foreign Exchange: Risk Identification and Management

An Introduction to Risk Management and Derivatives

Future Contracts and Forward Rate Agreements

Options

Interest Rate Swaps, Cross-Currency Swaps and Credit Default

Filters

A bond's price will be ___ when the coupon rate is higher than current market interest rates; _ when the coupon rate is equal to the current market interest rates; and _____ when the coupon rate is less than the current market interest rates.