Question 1

Packaging a portfolio of financial securities and issuing an asset-backed security backed by this portfolio is known as:

Accepted Answer

A) asset securitization. 
B) revenue securitization. 
C) backup securitization. 
D) payment securitization. 
A) asset securitization. 
B) revenue securitization. 
C) backup securitization. 
D) payment securitization.

Question 2

Galt Industries has just issued a callable,$1000 par value,five-year,6% coupon bond with semiannual coupon payments.The bond can be called at par in three years or anytime thereafter on a coupon payment date.If the bond is currently trading for $978.94,then its yield to call is closest to:

Accepted Answer

A) 3.4% 
B) 6.0% 
C) 6.5% 
D) 6.8% 
A) 3.4% 
B) 6.0% 
C) 6.5% 
D) 6.8%

Question 3

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

Question 4

Which of the following statements is FALSE?

Accepted Answer

A) The registered bond system also facilitates tax collection because the government can easily keep track of all interest payments made. 
B) Asset backed bonds and mortgage bonds are secured debt: Specific assets are pledged as collateral that bondholders have a direct claim to in the event of bankruptcy. 
C) Notes typically have longer maturities (more than ten years)than debentures. 
D) Although the word "bond" is commonly used to mean any kind of debt security,technically a corporate bond must be secured. 
A) The registered bond system also facilitates tax collection because the government can easily keep track of all interest payments made. 
B) Asset backed bonds and mortgage bonds are secured debt: Specific assets are pledged as collateral that bondholders have a direct claim to in the event of bankruptcy. 
C) Notes typically have longer maturities (more than ten years)than debentures. 
D) Although the word "bond" is commonly used to mean any kind of debt security,technically a corporate bond must be secured.

Question 5

Which of the following statements is FALSE regarding a call provision?

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 a predetermined 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 allows the issuer of the bond the right (but not the obligation)to retire all outstanding bonds on (or after)a specific date (the call date),for the call price. 
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 a predetermined 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 allows the issuer of the bond the right (but not the obligation)to retire all outstanding bonds on (or after)a specific date (the call date),for the call price.

Question 6

Which of the following statements regarding municipal bonds is FALSE?

Accepted Answer

A) A single municipal bond issue will often contain a number of different maturity dates.Such issues are often called multi-muni bonds because the bonds are scheduled to mature over a multiple number of years. 
B) Revenue bonds are where the local government pledges specific revenues generated by projects that were initially financed by the bond issue. 
C) Municipal bonds are sometimes also referred to as tax-exempt bonds. 
D) Bonds backed by the full faith and credit of a local government are known as general obligation bonds and are not as secure as bonds backed by the full faith and credit of the federal government. 
A) A single municipal bond issue will often contain a number of different maturity dates.Such issues are often called multi-muni bonds because the bonds are scheduled to mature over a multiple number of years. 
B) Revenue bonds are where the local government pledges specific revenues generated by projects that were initially financed by the bond issue. 
C) Municipal bonds are sometimes also referred to as tax-exempt bonds. 
D) Bonds backed by the full faith and credit of a local government are known as general obligation bonds and are not as secure as bonds backed by the full faith and credit of the federal government.

Question 7

Suppose that in January 2001,the U.S.Treasury issued a ten-year inflation-indexed note with a coupon of 3 1/2%.On the date of issue the consumer price index (CPI)was 175.1.In January 2006,the CPI had increased to 198.3.What coupon payment was made on this bond in January 2006?

Accepted Answer

Between January 2001 and January 2006 th

Question 8

In January 2010,the U.S.Treasury issued a $1000 par,five-year,inflation-indexed note with a coupon of 5%.On the date of issue,the consumer price index (CPI)was 250.By January 2015,the CPI had decreased to 200.The principal payment that was made in January 2015 is closest to:

Accepted Answer

A) $800 
B) $1000 
C) $1250 
D) $1500 
A) $800 
B) $1000 
C) $1250 
D) $1500

Question 9

Treasury securities that are semiannual-paying coupon bonds with maturities longer than 10 years are called:

Accepted Answer

A) Treasury bonds. 
B) TIPS. 
C) Treasury bills. 
D) Treasury notes. 
A) Treasury bonds. 
B) TIPS. 
C) Treasury bills. 
D) Treasury notes.

Question 10

Use the information for the question(s)below.
KT Enterprises has just issued a callable (at par)fifteen-year,7% coupon bond with semiannual coupon payments.The bond can be called at par in five years or anytime thereafter on a coupon payment date.It has a current price of 101.
-What is the Yield to Maturity (YTM)on this bond?

Accepted Answer

N = 30 (15 × 2)
PMT

Question 11

In January 2010,the U.S.Treasury issued a $1000 par,ten-year,inflation-indexed note with a coupon of 4%.On the date of issue,the consumer price index (CPI)was 200.By January 2020,the CPI had increased to 300.The coupon payment that was made in January 2020 is closest to:

Accepted Answer

A) $20 
B) $30 
C) $40 
D) $50 
A) $20 
B) $30 
C) $40 
D) $50

Question 12

Treasury securities that are standard coupon bonds where the outstanding principal is adjusted for inflation are called:

Accepted Answer

A) Treasury notes. 
B) Treasury bonds. 
C) TIPS. 
D) Treasury bills. 
A) Treasury notes. 
B) Treasury bonds. 
C) TIPS. 
D) Treasury bills.

Question 13

Treasury securities that are pure discount bonds with original maturities ranging from a few days to 26 weeks are called:

Accepted Answer

A) TIPS. 
B) Treasury bonds. 
C) Treasury notes. 
D) Treasury bills. 
A) TIPS. 
B) Treasury bonds. 
C) Treasury notes. 
D) Treasury bills.

Question 14

Which of the following statements is FALSE?

Accepted Answer

A) When bond yields have increased,by exercising the call on the callable bond and then immediately refinancing,the issuer can lower its borrowing costs. 
B) To understand how call provisions affect the price of a bond,we first need to consider when an issuer will exercise its right to call the bond. 
C) If the call provision offers a cheaper way to retire the bonds the issuer will forgo the option of purchasing the bonds in the open market and call the bonds instead. 
D) An issuer can always retire one of its bonds early by repurchasing the bond in the open market. 
A) When bond yields have increased,by exercising the call on the callable bond and then immediately refinancing,the issuer can lower its borrowing costs. 
B) To understand how call provisions affect the price of a bond,we first need to consider when an issuer will exercise its right to call the bond. 
C) If the call provision offers a cheaper way to retire the bonds the issuer will forgo the option of purchasing the bonds in the open market and call the bonds instead. 
D) An issuer can always retire one of its bonds early by repurchasing the bond in the open market.

Exam 24: Debt Financing

Packaging a portfolio of financial securities and issuing an asset-backed security backed by this portfolio is known as:

Galt Industries has just issued a callable,$1000 par value,five-year,6% coupon bond with semiannual coupon payments.The bond can be called at par in three years or anytime thereafter on a coupon payment date.If the bond is currently trading for $978.94,then its yield to call is closest to:

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

Which of the following statements is FALSE?

Which of the following statements is FALSE regarding a call provision?

Which of the following statements regarding municipal bonds is FALSE?

Suppose that in January 2001,the U.S.Treasury issued a ten-year inflation-indexed note with a coupon of 3 1/2%.On the date of issue the consumer price index (CPI)was 175.1.In January 2006,the CPI had increased to 198.3.What coupon payment was made on this bond in January 2006?

In January 2010,the U.S.Treasury issued a $1000 par,five-year,inflation-indexed note with a coupon of 5%.On the date of issue,the consumer price index (CPI)was 250.By January 2015,the CPI had decreased to 200.The principal payment that was made in January 2015 is closest to:

Treasury securities that are semiannual-paying coupon bonds with maturities longer than 10 years are called:

In January 2010,the U.S.Treasury issued a $1000 par,ten-year,inflation-indexed note with a coupon of 4%.On the date of issue,the consumer price index (CPI)was 200.By January 2020,the CPI had increased to 300.The coupon payment that was made in January 2020 is closest to:

Treasury securities that are standard coupon bonds where the outstanding principal is adjusted for inflation are called:

Treasury securities that are pure discount bonds with original maturities ranging from a few days to 26 weeks are called:

Which of the following statements is FALSE?

The Corporation

Introduction to Financial Statement Analysis

Financial Decision Making and the Law of One Price

The Time Value of Money

Interest Rates

Valuing Bonds

Investment Decision Rules

Fundamentals of Capital Budgeting

Valuing Stocks

Capital Markets and the Pricing of Risk

Optimal Portfolio Choice and the Capital Asset Pricing Model

Estimating the Cost of Capital

Investor Behavior and Capital Market Efficiency

Capital Structure in a Perfect Market

Debt and Taxes

Financial Distress,managerial Incentives,and Information

Payout Policy

Capital Budgeting and Valuation With Leverage

Valuation and Financial Modeling: a Case Study

Financial Options

Option Valuation

Real Options

Raising Equity Capital

Leasing

Working Capital Management

Short-Term Financial Planning

Mergers and Acquisitions

Corporate Governance

Risk Management

International Corporate Finance

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