Question 1

Private debt cannot be in the form of bonds.

Accepted Answer

A) True 
 B)False

Question 2

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 3

Convertible bonds have a provision that gives the bondholder an option to convert each bond owned into a fixed number of shares of common stock.

Accepted Answer

A) True 
 B)False

Question 4

What kind of unsecured corporate debt has a maturity of less than ten 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 5

Which of the following statements is FALSE?

Accepted Answer

A)  Global bonds combine the features of domestic, foreign, 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 European currency. 
A)  Global bonds combine the features of domestic, foreign, 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 European currency.

Question 6

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 7

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 8

Which of the following is an advantage of a public bond issue over private placement?

Accepted Answer

A)  It can be tailored to a particular situation. 
B)  It is less costly to issue. 
C)  It does not need to be registered with the SEC. 
D)  It is freely tradable on the bond market. 
A)  It can be tailored to a particular situation. 
B)  It is less costly to issue. 
C)  It does not need to be registered with the SEC. 
D)  It is freely tradable on the bond market.

Question 9

What is yield to maturity?

Accepted Answer

Yield to maturity is the annua

Question 10

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 11

A company issues a callable (at par) five-year, 7% 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 $110 per $100 of face value. What is the yield to worst of this bond when it is released?

Accepted Answer

A)  1.40% 
B)  -2.73% 
C)  3.00% 
D)  4.71% 
A)  1.40% 
B)  -2.73% 
C)  3.00% 
D)  4.71%

Question 12

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 13

A company issues a callable (at par) five-year, 7% 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 $110 per $100 of face value. What is the yield to maturity of this bond when it is released?

Accepted Answer

A)  1.40% 
B)  2.80% 
C)  4.71% 
D)  5.66% 
A)  1.40% 
B)  2.80% 
C)  4.71% 
D)  5.66%

Question 14

What is yield to worst?

Accepted Answer

Yield to worst is qu

Question 15

________ 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 16

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 17

Which of the following best describes an international bond that is not denominated in the local currency of the country in which it is issued?

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 18

Which of the following statements is FALSE?

Accepted Answer

A)  The registered bond system 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, and 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 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, and 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.

Question 19

A firm issues the convertible debt shown above. The price of stock in this company on July 1, 2008 is $15.14. What is the minimum call price that would make a bondholder prefer to accept the call rather than convert?

Accepted Answer

A)  par plus 3.29% 
B)  par plus 3.89% 
C)  par plus 4.49% 
D)  par plus 5.98% 
A)  par plus 3.29% 
B)  par plus 3.89% 
C)  par plus 4.49% 
D)  par plus 5.98%

Question 20

What are bond covenants?

Accepted Answer

Bond covenants are restrictive

Exam 15: Debt Financing

Private debt cannot be in the form of bonds.

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.

Convertible bonds have a provision that gives the bondholder an option to convert each bond owned into a fixed number of shares of common stock.

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

Which of the following statements is FALSE?

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 ________.

Which of the following statements is FALSE?

Which of the following is an advantage of a public bond issue over private placement?

What is yield to maturity?

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

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 yield to worst?

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

Which of the following is a type of call provision?

Which of the following best describes an international bond that is not denominated in the local currency of the country in which it is issued?

Which of the following statements is FALSE?

A firm issues the convertible debt shown above. The price of stock in this company on July 1, 2008 is $15.14. What is the minimum call price that would make a bondholder prefer to accept the call rather than convert?

What are bond covenants?

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

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