Question 1

When a callable bond sells at a premium, the likelihood of a call is ________ and the yield to worst is the yield to ________.

Accepted Answer

A) high, call 
B) low, call 
C) low, maturity 
D) high, maturity. 
A) high, call 
B) low, call 
C) low, maturity 
D) high, maturity.

Question 2

A firm issues $525 million in straight bonds at an original issue discount of 2% and a coupon rate of 5%. The firm pays fees of 2% on the face value of the bonds. What is the net amount of funds that the debt issue will provide for the firm?

Accepted Answer

A) $580 million 
B) $554.4 million 
C) $529 million 
D) $504 million 
A) $580 million 
B) $554.4 million 
C) $529 million 
D) $504 million

Question 3

A company issues a callable (at par)ten-year, 6% coupon bond with annual coupon payments. The bond can be called at par in one year after release or any time after that on a coupon payment date. On release, it has a price of $104 per $100 of face value. What is the yield to call of this bond when it is released?

Accepted Answer

A) 0.60% 
B) 1.50% 
C) 1.92% 
D) 5.47% 
A) 0.60% 
B) 1.50% 
C) 1.92% 
D) 5.47%

Question 4

A bond has a face value of $100 and a conversion ratio of 25. What is the conversion price?

Accepted Answer

A) $0.25 
B) $2.50 
C) $4.00 
D) $25.00 
A) $0.25 
B) $2.50 
C) $4.00 
D) $25.00

Question 5

________ are international bonds that are not denominated in the local currency of the country in which they are issued.

Accepted Answer

A) Domestic bonds 
B) Yankee bonds 
C) Eurobonds 
D) Debentures 
A) Domestic bonds 
B) Yankee bonds 
C) Eurobonds 
D) Debentures

Question 6

Clearview Corporation, a company that deals mainly with the financing and distribution of music, issues debt with a maturity of 15 years. In the case of bankruptcy, holders of this debt will have claim to the intellectual property of Clearview. Which of the following best describes this type of corporate debt?

Accepted Answer

A) a note 
B) a debenture 
C) a mortgage bond 
D) an asset-backed bond 
A) a note 
B) a debenture 
C) a mortgage bond 
D) an asset-backed bond

Question 7

Tompkinson's PLC., a British company, issues a bond in U.S. dollars in the United States which is intended for U.S. investors. Which of the following best describes this bond?

Accepted Answer

A) a domestic bond 
B) a Eurobond 
C) a global bond 
D) a Yankee bond 
A) a domestic bond 
B) a Eurobond 
C) a global bond 
D) a Yankee bond

Question 8

A bond with a face value of $1,000 is convertible to common stock at a conversion ratio of 60. If the stock is currently trading at $8.20 per share, the value of the bond is probably closest in value to which of the following?

Accepted Answer

A) less than $492.00 
B) about $492.00 
C) about $1,000 
D) above $1666.67 
A) less than $492.00 
B) about $492.00 
C) about $1,000 
D) above $1666.67

Question 9

Which of the following statements regarding sinking fund provisions is FALSE?

Accepted Answer

A) With a sinking fund, if a bond is trading at below its face value, because the bonds are repurchased at par, the decision as to which bonds to repurchase is made by lottery. 
B) With a sinking fund, instead of repaying the entire principal balance on the maturity date, the company makes regular payments into a sinking fund administered by a trustee over the life of the bond. 
C) Sinking fund provisions usually specify a minimum rate at which the issuer must contribute to the fund. 
D) Because the sinking fund allows the issuer to repurchase the bonds at par, the option to accelerate the payments is another form of call provision. 
A) With a sinking fund, if a bond is trading at below its face value, because the bonds are repurchased at par, the decision as to which bonds to repurchase is made by lottery. 
B) With a sinking fund, instead of repaying the entire principal balance on the maturity date, the company makes regular payments into a sinking fund administered by a trustee over the life of the bond. 
C) Sinking fund provisions usually specify a minimum rate at which the issuer must contribute to the fund. 
D) Because the sinking fund allows the issuer to repurchase the bonds at par, the option to accelerate the payments is another form of call provision.

Question 10

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 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 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 11

What are secured debt?

Accepted Answer

With secured debt, specific as

Question 12

A company issues a callable (at par)ten-year, 6% coupon bond with annual coupon payments. The bond can be called at par in one year after release or any time after that on a coupon payment date. On release, it has a price of $104 per $100 of face value. What is the yield to worst of this bond when it is released?

Accepted Answer

A) 0.60% 
B) 1.92% 
C) 4.00% 
D) 5.47% 
A) 0.60% 
B) 1.92% 
C) 4.00% 
D) 5.47%

Question 13

What kind of corporate debt has a maturity of less than ten 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 14

Foreign bonds in the United States 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 15

Which of the following statements concerning the use of sinking funds to repurchase a bond issue is NOT true?

Accepted Answer

A) A firm should make regular payments into a sinking fund administered by a trustee over the life of the bond. 
B) A firm can reduce the amount of outstanding debt without affecting the cash flows of the remaining bonds. 
C) Payments from the sinking fund are used to repurchase bonds. 
D) Bonds can be issued with a sinking fund provision or a call provision, but not both. 
A) A firm should make regular payments into a sinking fund administered by a trustee over the life of the bond. 
B) A firm can reduce the amount of outstanding debt without affecting the cash flows of the remaining bonds. 
C) Payments from the sinking fund are used to repurchase bonds. 
D) Bonds can be issued with a sinking fund provision or a call provision, but not both.

Question 16

If a bond covenant is not met, then the bond goes into technical default and the bondholder can demand immediate repayment or force the company to renegotiate the terms of the bond.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is a type of call provision?

Accepted Answer

A) sinking fund 
B) balloon payment 
C) conversion feature 
D) indenture 
A) sinking fund 
B) balloon payment 
C) conversion feature 
D) indenture

Question 18

What are debentures?

Accepted Answer

Debentures are unsec

Question 19

Which of the following best describes a bond that is issued by a local entity and traded in a local market, but may be purchased by foreigners?

Accepted Answer

A) a domestic bond 
B) a foreign bond 
C) a Eurobond 
D) a global bond 
A) a domestic bond 
B) a foreign bond 
C) a Eurobond 
D) a global bond

Question 20

A company issues a callable (at par)ten-year, 6% coupon bond with annual coupon payments. The bond can be called at par in one year after release or any time after that on a coupon payment date. On release, it has a price of $104 per $100 of face value. What is the yield to maturity of this bond when it is released?

Accepted Answer

A) 0.60% 
B) 1.92% 
C) 4.00% 
D) 5.47% 
A) 0.60% 
B) 1.92% 
C) 4.00% 
D) 5.47%

Exam 15: Debt Financing

When a callable bond sells at a premium, the likelihood of a call is ________ and the yield to worst is the yield to ________.

A firm issues $525 million in straight bonds at an original issue discount of 2% and a coupon rate of 5%. The firm pays fees of 2% on the face value of the bonds. What is the net amount of funds that the debt issue will provide for the firm?

A bond has a face value of $100 and a conversion ratio of 25. What is the conversion price?

________ are international bonds that are not denominated in the local currency of the country in which they are issued.

Tompkinson's PLC., a British company, issues a bond in U.S. dollars in the United States which is intended for U.S. investors. Which of the following best describes this bond?

A bond with a face value of $1,000 is convertible to common stock at a conversion ratio of 60. If the stock is currently trading at $8.20 per share, the value of the bond is probably closest in value to which of the following?

Which of the following statements regarding sinking fund provisions is FALSE?

Which of the following statements is FALSE?

What are secured debt?

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

Foreign bonds in the United States are known as ________.

Which of the following statements concerning the use of sinking funds to repurchase a bond issue is NOT true?

If a bond covenant is not met, then the bond goes into technical default and the bondholder can demand immediate repayment or force the company to renegotiate the terms of the bond.

Which of the following is a type of call provision?

What are debentures?

Which of the following best describes a bond that is issued by a local entity and traded in a local market, but may be purchased by foreigners?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

Filters

When a callable bond sells at a premium, the likelihood of a call is and the yield to worst is the yield to .