Question 1

Foreign bonds in Canada are known as ________.

Accepted Answer

A)  registered bonds 
B)  maple bonds 
C)  bearer bonds 
D)  original issue discount bonds 
A)  registered bonds 
B)  maple bonds 
C)  bearer bonds 
D)  original issue discount bonds

Question 2

The ________ provision sets the call price as the ________ of the remaining coupons.

Accepted Answer

A)  Canada Call; current value 
B)  Canada Call; future value 
C)  Canada Call; adjusted value 
D)  Canada Call; present value 
A)  Canada Call; current value 
B)  Canada Call; future value 
C)  Canada Call; adjusted value 
D)  Canada Call; present value

Question 3

What kind of corporate debt can be secured by any specified assets?

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 4

Fixed-coupon marketable bonds,more commonly known as ________,are ________ with original maturities of between 2 and 40 years.

Accepted Answer

A)  Canada Savings bonds; semiannual coupon bonds 
B)  Government of Canada bonds; semiannual coupon bonds 
C)  Government of Canada bonds; annual coupon bonds 
D)  Canada Savings bonds; annual coupon bonds 
A)  Canada Savings bonds; semiannual coupon bonds 
B)  Government of Canada bonds; semiannual coupon bonds 
C)  Government of Canada bonds; annual coupon bonds 
D)  Canada Savings bonds; annual coupon bonds

Question 5

Which of the following statements is false?

Accepted Answer

A)  In the event of default, the assets not pledged as collateral for outstanding bonds cannot be used to pay off the holders of subordinated debentures until all more senior debt has been paid off. 
B)  Because more than one debenture might be outstanding, the bondholder's priority in claiming assets in the event of default, known as the bond's seniority, is important. 
C)  When a firm conducts a subsequent debenture issue that has lower priority than its outstanding debt, the new debt is known as a subordinated debenture. 
D)  Most debenture issues contain clauses restricting the company from issuing new debt with equal or lower priority than existing debt. 
A)  In the event of default, the assets not pledged as collateral for outstanding bonds cannot be used to pay off the holders of subordinated debentures until all more senior debt has been paid off. 
B)  Because more than one debenture might be outstanding, the bondholder's priority in claiming assets in the event of default, known as the bond's seniority, is important. 
C)  When a firm conducts a subsequent debenture issue that has lower priority than its outstanding debt, the new debt is known as a subordinated debenture. 
D)  Most debenture issues contain clauses restricting the company from issuing new debt with equal or lower priority than existing debt.

Question 6

In Canada,the face value of most corporate bonds is denominated in standard increments,most often ________ and almost always pay coupons ________.

Accepted Answer

A)  $100,000; quarterly 
B)  $10,000; annually 
C)  $1,000; monthly 
D)  $1,000; semiannually 
A)  $100,000; quarterly 
B)  $10,000; annually 
C)  $1,000; monthly 
D)  $1,000; semiannually

Question 7

Bonds issued by a local entity,denominated in the local currency,traded in a local market,but purchased by foreigners are called

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 8

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

Accepted Answer

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

Question 9

Use the information for the question(s) below.
Luther Industries has just issued a callable (at 102) ten-year, 8% coupon bond with semi-annual coupon payments. The bond can be called at 102 in three years or anytime thereafter on a coupon payment date. It has a current price of 99.
-What is the Yield to Maturity (YTM)on this bond?

Accepted Answer

N = 20 (10 × 2)
PMT

Question 10

Which of the following statements is false?

Accepted Answer

A)  Almost all bonds that are issued today are registered bonds. 
B)  The trust company represents the bondholders and makes sure that the terms of the indenture are enforced. 
C)  For private placements, the prospectus must include an indenture, a formal contract between the bond issuer and a trust company. 
D)  In the case of default, the trust company represents the bondholders' interests. 
A)  Almost all bonds that are issued today are registered bonds. 
B)  The trust company represents the bondholders and makes sure that the terms of the indenture are enforced. 
C)  For private placements, the prospectus must include an indenture, a formal contract between the bond issuer and a trust company. 
D)  In the case of default, the trust company represents the bondholders' interests.

Question 11

Which of the following statements is false?

Accepted Answer

A)  With registered bonds, on each coupon payment date, the bond issuer consults its list of registered owners and mails each owner a check (or directly deposits the coupon payment into the owner's brokerage account). 
B)  If a coupon bond is issued at a discount, it is called an original issue discount bond. 
C)  The face value or principal amount of the bond is denominated in standard increments, most often $10,000. 
D)  In a public offering, the indenture lays out the terms of the bond issue. 
A)  With registered bonds, on each coupon payment date, the bond issuer consults its list of registered owners and mails each owner a check (or directly deposits the coupon payment into the owner's brokerage account). 
B)  If a coupon bond is issued at a discount, it is called an original issue discount bond. 
C)  The face value or principal amount of the bond is denominated in standard increments, most often $10,000. 
D)  In a public offering, the indenture lays out the terms of the bond issue.

Question 12

Which of the following statements is false?

Accepted Answer

A)  A convertible bond can be thought of as a regular bond plus a special type of call option called a warrant. 
B)  On the maturity date of the bond, the strike price of the embedded warrant in a convertible bond is equal to the face value of the bond divided by the conversion ratio-that is, the conversion price. 
C)  Calling a convertible bond transfers the remaining time value of the conversion option from shareholders to bondholders. 
D)  If the stock price is low so that the embedded warrant is deep out-of-the-money, the conversion provision is not worth much and the bond's value is close to the value of a straight bond-an otherwise identical bond without the conversion provision. 
A)  A convertible bond can be thought of as a regular bond plus a special type of call option called a warrant. 
B)  On the maturity date of the bond, the strike price of the embedded warrant in a convertible bond is equal to the face value of the bond divided by the conversion ratio-that is, the conversion price. 
C)  Calling a convertible bond transfers the remaining time value of the conversion option from shareholders to bondholders. 
D)  If the stock price is low so that the embedded warrant is deep out-of-the-money, the conversion provision is not worth much and the bond's value is close to the value of a straight bond-an otherwise identical bond without the conversion provision.

Question 13

Which of the following statements is false?

Accepted Answer

A)  If the issuer fails to live up to any covenant, the issuer goes into bankruptcy. 
B)  The stronger the covenants in the bond contract, the less likely the issuer will be to default on the bond, and so the lower the interest rate investors will require to buy the bond. 
C)  Covenants are restrictive clauses in a bond contract that limit the issuer from taking actions that may undercut its ability to repay the bonds. 
D)  Bond agreements often contain covenants that restrict the ability of management to pay dividends. 
A)  If the issuer fails to live up to any covenant, the issuer goes into bankruptcy. 
B)  The stronger the covenants in the bond contract, the less likely the issuer will be to default on the bond, and so the lower the interest rate investors will require to buy the bond. 
C)  Covenants are restrictive clauses in a bond contract that limit the issuer from taking actions that may undercut its ability to repay the bonds. 
D)  Bond agreements often contain covenants that restrict the ability of management to pay dividends.

Question 14

A ________ is a standard coupon bond and its outstanding principal is adjusted for ________.

Accepted Answer

A)  real return bond; inflation 
B)  discounted bond; present value 
C)  strip bond; future value 
D)  real return bond; yield to maturity 
A)  real return bond; inflation 
B)  discounted bond; present value 
C)  strip bond; future value 
D)  real return bond; yield to maturity

Question 15

Which of the following statements is false?

Accepted Answer

A)  The holder of a callable bond faces reinvestment risk precisely when it hurts: when market rates are lower than the coupon rate he or she is currently receiving. 
B)  When yields have risen, the issuer will not choose to exercise the call on the callable bond. 
C)  The issuer will exercise the call option only when the prevailing market rate exceeds the coupon rate of the bond. 
D)  A callable bond is relatively less attractive to the bondholder than the identical non-callable bond. 
A)  The holder of a callable bond faces reinvestment risk precisely when it hurts: when market rates are lower than the coupon rate he or she is currently receiving. 
B)  When yields have risen, the issuer will not choose to exercise the call on the callable bond. 
C)  The issuer will exercise the call option only when the prevailing market rate exceeds the coupon rate of the bond. 
D)  A callable bond is relatively less attractive to the bondholder than the identical non-callable bond.

Question 16

Two kinds of auctions are used by the Bank of Canada.The first type of auction is the ________,which is also called the discriminatory price auction and the second type of auction is the ________,which is used for real return bonds.

Accepted Answer

A)  single price auction; multiple-price auction 
B)  multiple-price auction; single price auction 
C)  Dutch auction; multiple-price auction 
D)  single price auction; Dutch auction 
A)  single price auction; multiple-price auction 
B)  multiple-price auction; single price auction 
C)  Dutch auction; multiple-price auction 
D)  single price auction; Dutch auction

Question 17

Which of the following statements is false?

Accepted Answer

A)  The assumption that underlies the yield calculation of a callable bond-that it will not be called-is not always realistic, so bond traders often quote the yield to call. 
B)  The yield to call (YT
C)  is the annual yield of a callable bond assuming that the bond is called at the earliest opportunity. 
C)  We can think of the yield to maturity of a callable bond as the interest rate the bondholder receives if the bond is not called and repaid in full. 
D)  Because the price of a callable bond is higher than the price of an otherwise identical non-callable bond, the yield to maturity of a callable bond will be lower than the yield to maturity for its non-callable counterpart. 
A)  The assumption that underlies the yield calculation of a callable bond-that it will not be called-is not always realistic, so bond traders often quote the yield to call. 
B)  The yield to call (YT
C)  is the annual yield of a callable bond assuming that the bond is called at the earliest opportunity. 
C)  We can think of the yield to maturity of a callable bond as the interest rate the bondholder receives if the bond is not called and repaid in full. 
D)  Because the price of a callable bond is higher than the price of an otherwise identical non-callable bond, the yield to maturity of a callable bond will be lower than the yield to maturity for its non-callable counterpart.

Question 18

Use the information for the question(s) below.
Luther Industries has just issued a callable (at 102) ten-year, 8% coupon bond with semi-annual coupon payments. The bond can be called at 102 in three years or anytime thereafter on a coupon payment date. It has a current price of 99.
-What is the Yield to Call (YTC)on this bond?

Accepted Answer

N = 6 (3 × 2)
PMT =

Question 19

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 20

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.

Exam 24: Debt Financing

Foreign bonds in Canada are known as ________.

The ________ provision sets the call price as the ________ of the remaining coupons.

What kind of corporate debt can be secured by any specified assets?

Fixed-coupon marketable bonds,more commonly known as ________,are ________ with original maturities of between 2 and 40 years.

Which of the following statements is false?

In Canada,the face value of most corporate bonds is denominated in standard increments,most often ________ and almost always pay coupons ________.

Bonds issued by a local entity,denominated in the local currency,traded in a local market,but purchased by foreigners are called

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

Which of the following statements is false?

Which of the following statements is false?

Which of the following statements is false?

Which of the following statements is false?

A ________ is a standard coupon bond and its outstanding principal is adjusted for ________.

Which of the following statements is false?

Two kinds of auctions are used by the Bank of Canada.The first type of auction is the ________,which is also called the discriminatory price auction and the second type of auction is the ________,which is used for real return bonds.

Which of the following statements is false?

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

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

The provision sets the call price as the of the remaining coupons.

Fixed-coupon marketable bonds,more commonly known as ,are with original maturities of between 2 and 40 years.

In Canada,the face value of most corporate bonds is denominated in standard increments,most often and almost always pay coupons .

A is a standard coupon bond and its outstanding principal is adjusted for .

Two kinds of auctions are used by the Bank of Canada.The first type of auction is the ,which is also called the discriminatory price auction and the second type of auction is the ,which is used for real return bonds.