Question 1

Which of the following statements is false?

Accepted Answer

A)  Zero-coupon Treasury securities with maturities longer than one year also trade in the bond market. 
B)  Treasury securities are initially sold to the public through dealers. 
C)  Municipal bonds ("munis") are issued by provincial and local governments. 
D)  Municipal bonds' distinguishing characteristic is that the income on municipal bonds is not taxable at the federal level. 
A)  Zero-coupon Treasury securities with maturities longer than one year also trade in the bond market. 
B)  Treasury securities are initially sold to the public through dealers. 
C)  Municipal bonds ("munis") are issued by provincial and local governments. 
D)  Municipal bonds' distinguishing characteristic is that the income on municipal bonds is not taxable at the federal level. B

Question 2

Which of the following statements regarding private placements is false?

Accepted Answer

A)  A private placement is a bond issue that does not trade on a public market but rather is sold to a small group of investors. 
B)  Privately placed debt need not conform to the same standards as public debt; as a consequence, it can be tailored to the particular situation. 
C)  Canadian governments never issue bonds to raise funds to meet their short-term cash flows. 
D)  Because a private placement does not need to be registered, it is less costly to issue. 
A)  A private placement is a bond issue that does not trade on a public market but rather is sold to a small group of investors. 
B)  Privately placed debt need not conform to the same standards as public debt; as a consequence, it can be tailored to the particular situation. 
C)  Canadian governments never issue bonds to raise funds to meet their short-term cash flows. 
D)  Because a private placement does not need to be registered, it is less costly to issue. C

Question 3

All income from Government of Canada securities is ________ at the federal and provincial levels.If an investor sells a security before it matures,there may be ________.

Accepted Answer

A)  non-taxable; taxes on both interest income and capital gains 
B)  taxable; tax on capital gains 
C)  taxable; taxes on both interest income and capital gains 
D)  taxable; tax on interest income 
A)  non-taxable; taxes on both interest income and capital gains 
B)  taxable; tax on capital gains 
C)  taxable; taxes on both interest income and capital gains 
D)  taxable; tax on interest income C

Question 4

Which of the following statements is false?

Accepted Answer

A)  Before the call date, investors anticipate the optimal strategy that the issuer will follow, and the bond price reflects this strategy. 
B)  The yield to maturity of a callable bond is calculated as if the bond were called at the earliest opportunity. 
C)  A callable bond will trade at a lower price (and therefore a higher yield) than an otherwise equivalent non-callable bond. 
D)  The price of a callable bond can be low when yields are high, but does not rise above the call value when the yield is low. 
A)  Before the call date, investors anticipate the optimal strategy that the issuer will follow, and the bond price reflects this strategy. 
B)  The yield to maturity of a callable bond is calculated as if the bond were called at the earliest opportunity. 
C)  A callable bond will trade at a lower price (and therefore a higher yield) than an otherwise equivalent non-callable bond. 
D)  The price of a callable bond can be low when yields are high, but does not rise above the call value when the yield is low.

Question 5

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 will 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 will call the bonds instead. 
D)  An issuer can always retire one of its bonds early by repurchasing the bond in the open market.

Question 6

Use the information for the question(s) below.
KT Enterprises has just issued a callable (at par) fifteen-year, 7% coupon bond with semi-annual 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 7

In addition to the tradable securities,the Canadian government also borrows directly from ________ through ________ and Canada Premium Bonds.

Accepted Answer

A)  corporate investors; Canada Savings Bonds 
B)  venture capital investors; Government of Canada Bonds 
C)  institutional investors; Government of Canada Bonds 
D)  individuals; Canada Savings Bonds 
A)  corporate investors; Canada Savings Bonds 
B)  venture capital investors; Government of Canada Bonds 
C)  institutional investors; Government of Canada Bonds 
D)  individuals; Canada Savings Bonds

Question 8

The Canadian government sells its domestic debt to financial market distributors and dealers through ________ run by ________.

Accepted Answer

A)  auctions ; the Bank of Canada 
B)  contract sales; the Ministry of Finance 
C)  contract sales; the Bank of Canada 
D)  auctions; the Ministry of Finance 
A)  auctions ; the Bank of Canada 
B)  contract sales; the Ministry of Finance 
C)  contract sales; the Bank of Canada 
D)  auctions; the Ministry of Finance

Question 9

Which of the following statements is false?

Accepted Answer

A)  The Government of Canada frequently issues strip bonds. 
B)  The Government of Canada frequently issues bonds through multiple-price auctions. 
C)  The Government of Canada frequently issues bonds through single-price auctions. 
D)  The Government of Canada frequently issues bonds through auctions in bond markets. 
A)  The Government of Canada frequently issues strip bonds. 
B)  The Government of Canada frequently issues bonds through multiple-price auctions. 
C)  The Government of Canada frequently issues bonds through single-price auctions. 
D)  The Government of Canada frequently issues bonds through auctions in bond markets.

Question 10

What kind of corporate debt must be secured by real property?

Accepted Answer

A)  Mortgage bonds 
B)  Notes 
C)  Asset-backed bonds 
D)  Debentures 
A)  Mortgage bonds 
B)  Notes 
C)  Asset-backed bonds 
D)  Debentures

Question 11

Use the information for the question(s) below.
KT Enterprises has just issued a callable (at par) fifteen-year, 7% coupon bond with semi-annual 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 Call (YTC)on this bond?

Accepted Answer

N = 10 (5 × 2)
PMT =

Question 12

Which of the following statements is false?

Accepted Answer

A)  By including more covenants, issuers increase their costs of borrowing. 
B)  Once bonds are issued, equity holders have an incentive to increase dividends at the expense of debt holders. 
C)  Covenants may restrict the level of further indebtedness and specify that the issuer must maintain a minimum amount of working capital. 
D)  If the covenants are designed to reduce agency costs by restricting management's ability to take negative-NPV actions that exploit debt holders, then the reduction in the firm's borrowing cost can more than outweigh the cost of the loss of flexibility associated with covenants. 
A)  By including more covenants, issuers increase their costs of borrowing. 
B)  Once bonds are issued, equity holders have an incentive to increase dividends at the expense of debt holders. 
C)  Covenants may restrict the level of further indebtedness and specify that the issuer must maintain a minimum amount of working capital. 
D)  If the covenants are designed to reduce agency costs by restricting management's ability to take negative-NPV actions that exploit debt holders, then the reduction in the firm's borrowing cost can more than outweigh the cost of the loss of flexibility associated with covenants.

Question 13

Which of the following statements is false?

Accepted Answer

A)  Canadian Crown corporations never use debt markets to raise capital. 
B)  Canadian provincial governments frequently use debt markets to raise funds. 
C)  Canadian municipal governments often use debt markets to raise funds. 
D)  The Canadian federal government uses debt markets to raise funds from time to time. 
A)  Canadian Crown corporations never use debt markets to raise capital. 
B)  Canadian provincial governments frequently use debt markets to raise funds. 
C)  Canadian municipal governments often use debt markets to raise funds. 
D)  The Canadian federal government uses debt markets to raise funds from time to time.

Question 14

Which of the following statements is false?

Accepted Answer

A)  Global bonds combine the features of domestic bonds, foreign bonds, and Eurobonds, and are offered for sale in several different markets simultaneously. 
B)  In a leveraged buyout (LBO), a group of private investors purchases all the equity of a public corporation. 
C)  A term loan is a bank loan that lasts for a specific term. 
D)  Eurobonds are international bonds that are denominated in the local European currency of the country in which they are issued. 
A)  Global bonds combine the features of domestic bonds, foreign bonds, and Eurobonds, and are offered for sale in several different markets simultaneously. 
B)  In a leveraged buyout (LBO), a group of private investors purchases all the equity of a public corporation. 
C)  A term loan is a bank loan that lasts for a specific term. 
D)  Eurobonds are international bonds that are denominated in the local European currency of the country in which they are issued.

Question 15

One of the ways that issuers repay bonds is to exercise a ________ provision that allows the issuer to repurchase the bonds ________.

Accepted Answer

A)  call; at a predetermined price 
B)  convertible; at a predetermined price 
C)  call; at a present price 
D)  call; at a discounted price 
A)  call; at a predetermined price 
B)  convertible; at a predetermined price 
C)  call; at a present price 
D)  call; at a discounted price

Question 16

________ and ________ are used by the Government of Canada.

Accepted Answer

A)  Five kinds of domestic debt securities; four types of foreign debt securities 
B)  Six kinds of domestic debt securities; five types of foreign debt securities 
C)  Four kinds of domestic debt securities; three types of foreign debt securities 
D)  Three kinds of domestic debt securities; four types of foreign debt securities 
A)  Five kinds of domestic debt securities; four types of foreign debt securities 
B)  Six kinds of domestic debt securities; five types of foreign debt securities 
C)  Four kinds of domestic debt securities; three types of foreign debt securities 
D)  Three kinds of domestic debt securities; four types of foreign debt securities

Question 17

What kind of corporate debt has a maturity of less than 10 years?

Accepted Answer

A)  Asset-backed bonds 
B)  Debentures 
C)  Notes 
D)  Mortgage bonds 
A)  Asset-backed bonds 
B)  Debentures 
C)  Notes 
D)  Mortgage bonds

Question 18

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 19

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 20

Which of the following statements is false?

Accepted Answer

A)  In the case of a Treasury note or Treasury bond offering, the stop-out yield determines the coupon of the bond and then all bidders pay the discounted value for the bond or note. 
B)  All competitive bidders submit sealed bids in terms of yields and the amount of bonds they are willing to purchase. 
C)  In the past, the Treasury has issued bonds with maturities of 30 years (often called long bonds) and 20 years. 
D)  Noncompetitive bidders (usually individuals) just submit the amount of bonds they wish to purchase and are guaranteed to have their orders filled at the auction. 
A)  In the case of a Treasury note or Treasury bond offering, the stop-out yield determines the coupon of the bond and then all bidders pay the discounted value for the bond or note. 
B)  All competitive bidders submit sealed bids in terms of yields and the amount of bonds they are willing to purchase. 
C)  In the past, the Treasury has issued bonds with maturities of 30 years (often called long bonds) and 20 years. 
D)  Noncompetitive bidders (usually individuals) just submit the amount of bonds they wish to purchase and are guaranteed to have their orders filled at the auction.

Exam 24: Debt Financing

Which of the following statements is false?

Which of the following statements regarding private placements is false?

All income from Government of Canada securities is ________ at the federal and provincial levels.If an investor sells a security before it matures,there may be ________.

Which of the following statements is false?

Which of the following statements is false?

In addition to the tradable securities,the Canadian government also borrows directly from ________ through ________ and Canada Premium Bonds.

The Canadian government sells its domestic debt to financial market distributors and dealers through ________ run by ________.

Which of the following statements is false?

What kind of corporate debt must be secured by real property?

Which of the following statements is false?

Which of the following statements is false?

Which of the following statements is false?

One of the ways that issuers repay bonds is to exercise a ________ provision that allows the issuer to repurchase the bonds ________.

________ and ________ are used by the Government of Canada.

What kind of corporate debt has a maturity of less than 10 years?

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

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

Which of the following statements is false?

The Corporation

Introduction to Financial Statement Analysis

Arbitrage and Financial Decision Making

The Time Value of Money

Interest Rates

Valuing Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Capital Markets and the Pricing of Risk

Optimal Portfolio Choice and the Capital Asset Pricing Model

Estimating the Cost of Capital

Investor Behaviour and Capital Market Efficiency

Financial Options

Option Valuation

Real Options

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 Modelling: a Case Study

The Mechanics of Raising Equity Capital

Leasing

Working Capital Management

Short-Term Financial Planning

Mergers and Acquisitions

Corporate Governance

Risk Management

International Corporate Finance

Filters

All income from Government of Canada securities is at the federal and provincial levels.If an investor sells a security before it matures,there may be .

In addition to the tradable securities,the Canadian government also borrows directly from through and Canada Premium Bonds.

The Canadian government sells its domestic debt to financial market distributors and dealers through run by .

One of the ways that issuers repay bonds is to exercise a provision that allows the issuer to repurchase the bonds .

and are used by the Government of Canada.