Question 1

If a bond has a make-whole call provision,the:

Accepted Answer

A) call premium can be either positive or negative. 
B) bond's market price will always equal its face value. 
C) bondholder will receive the face value amount plus interest if the bond is called. 
D) bondholder will receive the face value amount minus any interest paid to date if the bond is called. 
E) call price will increase as interest rates decrease. 
A) call premium can be either positive or negative. 
B) bond's market price will always equal its face value. 
C) bondholder will receive the face value amount plus interest if the bond is called. 
D) bondholder will receive the face value amount minus any interest paid to date if the bond is called. 
E) call price will increase as interest rates decrease. E

Question 2

Which one of these is not a right generally granted to shareholders?

Accepted Answer

A) Right to elect individuals to the board of directors 
B) Right to purchase shares of any new stock issue 
C) Right to receive proportional dividends 
D) Right to vote to approve or reject a merger offer 
E) First right to liquidation proceeds 
A) Right to elect individuals to the board of directors 
B) Right to purchase shares of any new stock issue 
C) Right to receive proportional dividends 
D) Right to vote to approve or reject a merger offer 
E) First right to liquidation proceeds E

Question 3

DLT has cumulative preferred stock outstanding that calls for quarterly dividend payments of $1.50 each.Due to its financial situation,the firm has not paid these preferred dividends for the past two quarters.What amount per share must be paid to the preferred shareholders this quarter if the firm also wants to pay a dividend on its common stock?

Accepted Answer

A) $1.50 
B) $3.00 
C) $4.50 
D) $6.00 
E) $7.50 
A) $1.50 
B) $3.00 
C) $4.50 
D) $6.00 
E) $7.50 C

Question 4

Which one of the following statements is true?

Accepted Answer

A) Bondholders are generally granted voting rights equal to those of common shareholders. 
B) Payments of both interest and dividends are tax-deductible as business expenses. 
C) Unpaid common stock dividends can force a firm into liquidation. 
D) Debt increases the possibility of financial distress. 
E) Debt holders have a residual claim on a firm's assets. 
A) Bondholders are generally granted voting rights equal to those of common shareholders. 
B) Payments of both interest and dividends are tax-deductible as business expenses. 
C) Unpaid common stock dividends can force a firm into liquidation. 
D) Debt increases the possibility of financial distress. 
E) Debt holders have a residual claim on a firm's assets.

Question 5

Which set of circumstances would best ensure the price of a bond with attached warrants will increase given no change in the bond's credit quality or terms?

Accepted Answer

A) An increase in both the market rate of interest and the underlying stock price 
B) A decrease in the market rate of interest and an increase in the underlying stock price 
C) An increase in the market rate of interest and a decrease in the underlying stock price 
D) A decrease in both the market rate of interest and the underlying stock price 
E) A decrease in the market rate of interest with no change in the underlying stock price 
A) An increase in both the market rate of interest and the underlying stock price 
B) A decrease in the market rate of interest and an increase in the underlying stock price 
C) An increase in the market rate of interest and a decrease in the underlying stock price 
D) A decrease in both the market rate of interest and the underlying stock price 
E) A decrease in the market rate of interest with no change in the underlying stock price

Question 6

Which group has the ultimate control over a corporation?

Accepted Answer

A) Bondholders 
B) Classified board 
C) Shareholders 
D) Directors 
E) Chief executive officer 
A) Bondholders 
B) Classified board 
C) Shareholders 
D) Directors 
E) Chief executive officer

Question 7

Analysts estimate that one year from today,a bond has a probability of 40 percent of being priced at $950 and a probability of 60 percent of being priced at $1,050.The bond is also callable at any time at $1,010.What is the expected value of this bond in one year?

Accepted Answer

A) $995 
B) $980 
C) $1,000 
D) $1,010 
E) $986 
A) $995 
B) $980 
C) $1,000 
D) $1,010 
E) $986

Question 8

Which type of bond grants the bond holder the right to force the bond's issuer to repay the bond at a stated price given that a certain situation(s)occurs?

Accepted Answer

A) Put bond 
B) Cat bond 
C) NoNo bond 
D) Income bond 
E) Warrant bond 
A) Put bond 
B) Cat bond 
C) NoNo bond 
D) Income bond 
E) Warrant bond

Question 9

Analysts estimate that a bond has an equal probability of being priced at either $940 or $1,050 one year from today.The bond is also callable at any time at $1,020.What is the expected value of this bond in one year?

Accepted Answer

A) $995 
B) $980 
C) $1,000 
D) $1,020 
E) $940 
A) $995 
B) $980 
C) $1,000 
D) $1,020 
E) $940

Question 10

Identify three key duties of a bond trustee.

Accepted Answer

∙ Ensure the bond indenture pr

Question 11

Bonds with attached warrants are frequently issued:

Accepted Answer

A) with very low coupons. 
B) at a greatly discounted price. 
C) with an attached share of preferred stock. 
D) with a share purchase price set equal to the market price at time of share purchase. 
E) with an attached share of common stock. 
A) with very low coupons. 
B) at a greatly discounted price. 
C) with an attached share of preferred stock. 
D) with a share purchase price set equal to the market price at time of share purchase. 
E) with an attached share of common stock.

Question 12

Unsecured corporate debt is commonly referred to as:

Accepted Answer

A) an indenture. 
B) a debenture. 
C) deferred debt. 
D) protected debt. 
E) collateralized debt. 
A) an indenture. 
B) a debenture. 
C) deferred debt. 
D) protected debt. 
E) collateralized debt.

Question 13

Historically in the U.S.,corporate bonds have generally been issued with a par value of:

Accepted Answer

A) $100. 
B) $5,000. 
C) $500. 
D) $10,000. 
E) $1,000. 
A) $100. 
B) $5,000. 
C) $500. 
D) $10,000. 
E) $1,000.

Question 14

What is the predominant source of financing for positive NPV projects by U.S.nonfinancial corporations?

Accepted Answer

A) Preferred stock 
B) Internally-generated funds 
C) Common stock 
D) Publicly-issued debt 
E) Privately-issued debt 
A) Preferred stock 
B) Internally-generated funds 
C) Common stock 
D) Publicly-issued debt 
E) Privately-issued debt

Question 15

Bonds that grant the issuer the right to extinguish the debt prior to maturity are referred to as which type of bond?

Accepted Answer

A) Put bond 
B) Debenture 
C) Callable bond 
D) Subordinated bond 
E) Covenant bond 
A) Put bond 
B) Debenture 
C) Callable bond 
D) Subordinated bond 
E) Covenant bond

Question 16

Which one of the following statements about preferred stock is true?

Accepted Answer

A) Unlike dividends paid on common stock,dividends paid on preferred stock are a tax-deductible expense. 
B) Dividends on preferred stock payable during the next twelve months are considered to be a corporate liability. 
C) If preferred dividends are non-cumulative,then preferred dividends not paid in a particular year will be carried forward to the next year. 
D) There is no significant difference in the voting rights granted to preferred and common shareholders. 
E) Preferred stock usually has a stated liquidating value of $100 per share. 
A) Unlike dividends paid on common stock,dividends paid on preferred stock are a tax-deductible expense. 
B) Dividends on preferred stock payable during the next twelve months are considered to be a corporate liability. 
C) If preferred dividends are non-cumulative,then preferred dividends not paid in a particular year will be carried forward to the next year. 
D) There is no significant difference in the voting rights granted to preferred and common shareholders. 
E) Preferred stock usually has a stated liquidating value of $100 per share.

Question 17

Financial economists prefer to use market values rather than book values when measuring debt ratios because market values are:

Accepted Answer

A) more stable than book values. 
B) a better reflection of current information. 
C) net of taxes. 
D) used by Standard & Poor's to measure credit worthiness. 
E) most commonly required by bond covenants. 
A) more stable than book values. 
B) a better reflection of current information. 
C) net of taxes. 
D) used by Standard & Poor's to measure credit worthiness. 
E) most commonly required by bond covenants.

Question 18

Which type of bond only pays coupon payments if it can do so from the income earned by the firm?

Accepted Answer

A) NoNo bond 
B) Readi-cash bond 
C) Floater bond 
D) LIBOR-based bond 
E) Income bond 
A) NoNo bond 
B) Readi-cash bond 
C) Floater bond 
D) LIBOR-based bond 
E) Income bond

Question 19

There are five seats on the board of directors of Atlas Corp.up for election.The firm has 120,000 shares of stock outstanding and uses cumulative voting.Each share is granted one vote per open seat.How many shares must you control if you want to guarantee your election to the board assuming no one else votes for you?

Accepted Answer

A) 24,000 
B) 23,999 
C) 20,001 
D) 20,000 
E) 24,001 
A) 24,000 
B) 23,999 
C) 20,001 
D) 20,000 
E) 24,001

Question 20

Which type of bond is a city or state most likely to use as a means of offsetting their cost of damages caused by a hurricane?

Accepted Answer

A) Convertible bond 
B) NoNo bond 
C) Cat bond 
D) Put bond 
E) CoCo bond 
A) Convertible bond 
B) NoNo bond 
C) Cat bond 
D) Put bond 
E) CoCo bond

Exam 15: Long-Term Financing

If a bond has a make-whole call provision,the:

Which one of these is not a right generally granted to shareholders?

Which one of the following statements is true?

Which set of circumstances would best ensure the price of a bond with attached warrants will increase given no change in the bond's credit quality or terms?

Which group has the ultimate control over a corporation?

Analysts estimate that one year from today,a bond has a probability of 40 percent of being priced at $950 and a probability of 60 percent of being priced at $1,050.The bond is also callable at any time at $1,010.What is the expected value of this bond in one year?

Which type of bond grants the bond holder the right to force the bond's issuer to repay the bond at a stated price given that a certain situation(s)occurs?

Analysts estimate that a bond has an equal probability of being priced at either $940 or $1,050 one year from today.The bond is also callable at any time at $1,020.What is the expected value of this bond in one year?

Identify three key duties of a bond trustee.

Bonds with attached warrants are frequently issued:

Unsecured corporate debt is commonly referred to as:

Historically in the U.S.,corporate bonds have generally been issued with a par value of:

What is the predominant source of financing for positive NPV projects by U.S.nonfinancial corporations?

Bonds that grant the issuer the right to extinguish the debt prior to maturity are referred to as which type of bond?

Which one of the following statements about preferred stock is true?

Financial economists prefer to use market values rather than book values when measuring debt ratios because market values are:

Which type of bond only pays coupon payments if it can do so from the income earned by the firm?

Which type of bond is a city or state most likely to use as a means of offsetting their cost of damages caused by a hurricane?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements and Cash Flow

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Lessons From Market History

Return, risk, and the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Risk, cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers,acquisitions,and Divestitures

Financial Distress

International Corporate Finance

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