Question 1

Which of the following is usually a form of public debt?

Accepted Answer

A) a preferred stock 
B) a bank loan 
C) a bond issue 
D) a revolving line of credit 
A) a preferred stock 
B) a bank loan 
C) a bond issue 
D) a revolving line of credit

Question 2

A callable bond will typically have a ________ yield than an otherwise identical bond without a call feature because ________.

Accepted Answer

A) lower, the firm loses flexibility with a callable bond 
B) higher, the firm loses flexibility with a callable bond 
C) lower, the option to call a bond is valuable 
D) higher, the option to call a bond is valuable 
A) lower, the firm loses flexibility with a callable bond 
B) higher, the firm loses flexibility with a callable bond 
C) lower, the option to call a bond is valuable 
D) higher, the option to call a bond is valuable

Question 3

The sole way that a firm can repay its bonds is by making the coupon and principal payments as specified in the bond contract.

Accepted Answer

A) True 
 B)False

Question 4

What is a call provision?

Accepted Answer

A) the periodic repurchasing of issued bonds through a sinking fund by the issuer 
B) an option to the issuer to repurchase the bonds at a predetermined price 
C) the option for the bondholder to convert each bond owned into a fixed number of shares of common stock 
D) a clause in a bond contract that restricts the actions of the issuer that might harm the interests of the bondholders 
A) the periodic repurchasing of issued bonds through a sinking fund by the issuer 
B) an option to the issuer to repurchase the bonds at a predetermined price 
C) the option for the bondholder to convert each bond owned into a fixed number of shares of common stock 
D) a clause in a bond contract that restricts the actions of the issuer that might harm the interests of the bondholders

Question 5

A company issues a 10-year, callable bond at par with 8% annual coupon payments. The bond can be called at par in one year after issue or any time after that on a coupon payment date. The call price is $104 per $100 of face value. What is the yield to call if this bond is called in one year?

Accepted Answer

A) 7% 
B) 12% 
C) 10% 
D) 4% 
A) 7% 
B) 12% 
C) 10% 
D) 4%

Question 6

What is an original issue discount bond?

Accepted Answer

An original issue di

Question 7

A bond that makes payments in a certain currency contains the risk of holding that currency and so is priced according to the yields of similar bonds in that currency.

Accepted Answer

A) True 
 B)False

Question 8

What is yield to maturity?

Accepted Answer

Yield to maturity is the annua

Question 9

A company issues a callable (at par)20-year, 5% 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 $102 per $100 of face value. What is the yield to worst of this bond when it is released?

Accepted Answer

A) 2.94% 
B) 4.84% 
C) 5.60% 
D) 6.66% 
A) 2.94% 
B) 4.84% 
C) 5.60% 
D) 6.66%

Question 10

A firm issues the convertible debt shown above. The price of stock in this company on July 1, 2008 is $6.00. What is the minimum call price that would make a bondholder prefer to accept the call rather than convert?

Accepted Answer

A) par 
B) par plus 12% 
C) par plus 8% 
D) par plus 1.2% 
A) par 
B) par plus 12% 
C) par plus 8% 
D) par plus 1.2%

Question 11

What are notes?

Accepted Answer

Notes are unsecured

Question 12

Which of the following would be most likely to have the lowest price?

Accepted Answer

A) a straight senior bond 
B) a convertible senior bond 
C) a callable subordinated bond 
D) a straight subordinated bond 
A) a straight senior bond 
B) a convertible senior bond 
C) a callable subordinated bond 
D) a straight subordinated bond

Question 13

What is yield to call?

Accepted Answer

For callable bonds, yield to c

Question 14

A firm issues the convertible debt shown above. The price of stock in this company on July 1, 2008 is $4.70. If the bonds are called on this date, which of the following is the action most likely to be taken by a holder of bond of face value of $10,000?

Accepted Answer

A) Convert the bond and accept shares with a value of $10,000. 
B) Convert the bond and accept shares with a value of $9599.75. 
C) Convert the bond and accept shares with a value of $10,105.00. 
D) Accept the call price and receive $10,000. 
A) Convert the bond and accept shares with a value of $10,000. 
B) Convert the bond and accept shares with a value of $9599.75. 
C) Convert the bond and accept shares with a value of $10,105.00. 
D) Accept the call price and receive $10,000.

Question 15

Private debt cannot be in the form of bonds.

Accepted Answer

A) True 
 B)False

Question 16

A bond has a face value of $10,000 and a conversion ratio of 530. The stock is currently trading at $16.50. What is the conversion price?

Accepted Answer

A) $7.55 
B) $16.50 
C) $18.87 
D) $53.00 
A) $7.55 
B) $16.50 
C) $18.87 
D) $53.00

Question 17

A firm issues $170 million in straight bonds at par and a coupon rate of 8.5%. The firm pays fees of 2% on the face value of the bonds. The net amount of funds that the debt issue will provide for the firm is ________.

Accepted Answer

A) $150 million 
B) $158 million 
C) $167 million 
D) $175 million 
A) $150 million 
B) $158 million 
C) $167 million 
D) $175 million

Question 18

Gepps Cross Industries issues debt with a maturity of 25 years. In the case of bankruptcy, holders of this debt may only claim those assets of the firm that are not already pledged as collateral on other debt. Which of the following best describes this type of corporate debt?

Accepted Answer

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

Question 19

Covenants in a bond contract restrict the actions that management of a firm can take that would benefit the debtholders of a firm at the expense of the equity holders of the firm.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements about bonds that are both convertible and callable is NOT true?

Accepted Answer

A) If these bonds are called by the issuer, the holder can choose to convert them rather than let them be called. 
B) Prior to maturity, the value of such bonds will be greater than the shares of stock that bond can be converted into. 
C) The decision to be made by the bondholders when the bonds are called is the same as they would have to make at maturity. 
D) By calling the bonds, the issuer can force bondholders to decide to convert at a time of the issuer's choice. 
A) If these bonds are called by the issuer, the holder can choose to convert them rather than let them be called. 
B) Prior to maturity, the value of such bonds will be greater than the shares of stock that bond can be converted into. 
C) The decision to be made by the bondholders when the bonds are called is the same as they would have to make at maturity. 
D) By calling the bonds, the issuer can force bondholders to decide to convert at a time of the issuer's choice.

Exam 15: Debt Financing

Which of the following is usually a form of public debt?

A callable bond will typically have a ________ yield than an otherwise identical bond without a call feature because ________.

The sole way that a firm can repay its bonds is by making the coupon and principal payments as specified in the bond contract.

What is a call provision?

A company issues a 10-year, callable bond at par with 8% annual coupon payments. The bond can be called at par in one year after issue or any time after that on a coupon payment date. The call price is $104 per $100 of face value. What is the yield to call if this bond is called in one year?

What is an original issue discount bond?

A bond that makes payments in a certain currency contains the risk of holding that currency and so is priced according to the yields of similar bonds in that currency.

What is yield to maturity?

A firm issues the convertible debt shown above. The price of stock in this company on July 1, 2008 is $6.00. What is the minimum call price that would make a bondholder prefer to accept the call rather than convert?

What are notes?

Which of the following would be most likely to have the lowest price?

What is yield to call?

A firm issues the convertible debt shown above. The price of stock in this company on July 1, 2008 is $4.70. If the bonds are called on this date, which of the following is the action most likely to be taken by a holder of bond of face value of $10,000?

Private debt cannot be in the form of bonds.

A bond has a face value of $10,000 and a conversion ratio of 530. The stock is currently trading at $16.50. What is the conversion price?

A firm issues $170 million in straight bonds at par and a coupon rate of 8.5%. The firm pays fees of 2% on the face value of the bonds. The net amount of funds that the debt issue will provide for the firm is ________.

Gepps Cross Industries issues debt with a maturity of 25 years. In the case of bankruptcy, holders of this debt may only claim those assets of the firm that are not already pledged as collateral on other debt. Which of the following best describes this type of corporate debt?

Covenants in a bond contract restrict the actions that management of a firm can take that would benefit the debtholders of a firm at the expense of the equity holders of the firm.

Which of the following statements about bonds that are both convertible and callable is NOT true?

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

A callable bond will typically have a yield than an otherwise identical bond without a call feature because .