Question 1

Corporations and governments use long-term debt financing called:

Accepted Answer

A)  retained earnings. 
B)  bonds. 
C)  shares. 
D)  preferred stock.

Question 2

Bonds are:

Accepted Answer

A)  a type of equity financing. 
B)  a short-term financial arrangement with periodic interest payments. 
C)  a debt instrument issued at discount with interest and principal repaid at maturity. 
D)  long-term debt instruments.

Question 3

In relation to long-term financing,a fully drawn advance is a:

Accepted Answer

A)  a bank loan advanced for a precise period for an unspecified purpose. 
B)  A term loan where the full amount is provided at the start of the loan, usually for a specified purpose. 
C)  A term loan where the borrower has the option of putting its operating account in deficit up to an agreed limit. 
D)  A term loan where the bank does not pay out the loan until after a specified period.

Question 4

The inclusion of covenants in a term loan is designed to protect the borrower from taking on too much debt.

Accepted Answer

A) True 
 B)False

Question 5

A/An _______ lease is a short-term arrangement where the lessee agrees to make periodic payments to the lessor for the right to use the asset.This arrangement usually contains only minor or no penalties for cancellation of the lease.

Accepted Answer

A)  financial 
B)  operating lease 
C)  direct 
D)  leveraged

Question 6

For what type of lease does the lessee provide a significant part of the funds to purchase the asset,often losing the advantage of leveraged leasing,while a financial institution provides the remainder?

Accepted Answer

A)  A capital lease 
B)  An equity lease 
C)  A sale and leveraged lease 
D)  A financial lease

Question 7

Long-term debt can be categorised as financing with an initial maturity:

Accepted Answer

A)  over 180 days and less than a year. 
B)  between 1 and 3 years. 
C)  over 1 year. 
D)  between 3 and 12 years.

Question 8

When a lender includes conditions in a loan agreement to protect its loan,these are known as:

Accepted Answer

A)  loan agreements. 
B)  loan covenants. 
C)  loan terms. 
D)  loan actions.

Question 9

In Australia which of the following long-term debt markets are the largest?

Accepted Answer

A)  The corporate bond market 
B)  The mortgage market 
C)  The unsecured note market 
D)  The leasing market

Question 10

When market interest rates increase after a bond is issued,the:

Accepted Answer

A)  face value of the bond increases. 
B)  market value of the bond increases. 
C)  market value of the bond decreases. 
D)  bond price is at a premium.

Question 11

When the coupon rate of a bond is below the current market interest rates,a bond will sell at:

Accepted Answer

A)  discount. 
B)  its original value. 
C)  premium. 
D)  face value.

Question 12

When a loan agreement contains actions for a borrowing company to comply with,such as supplying financial statements,these are called:

Accepted Answer

A)  accounting ratios. 
B)  negative covenants. 
C)  positive covenants. 
D)  loan options.

Question 13

A debenture is a/an:

Accepted Answer

A)  unsecured bond that only best-name corporate borrowers can issue. 
B)  legal document stating the restrictive covenants on the loan. 
C)  bond secured by a charge over the assets of the issuer. 
D)  corporate bond with a credit enhancement.

Question 14

Many years ago,banks:

Accepted Answer

A)  could make mortgage loans to households but not to businesses. 
B)  could make loans to businesses but not make mortgage loans. 
C)  held most loans on their books until they were paid off. 
D)  repackaged and sold most loans to investors.

Question 15

A company has two outstanding bonds with the same features,apart from their coupon.Bond A has a coupon of 5%,while bond B has a coupon of 8%.If the market interest rate changes by 10%:

Accepted Answer

A)  bond A will have the greater change in price. 
B)  bond B will have the greater change in price. 
C)  the price of the bonds will not alter. 
D)  the price of the bonds will change by the same amount.

Question 16

Compared with unsecured notes,a debenture can offer:

Accepted Answer

A)  a fixed charge over the issuer's already pledged assets. 
B)  a floating charge over the issuer's unpledged assets. 
C)  less chance of sale before maturity, as they are not usually traded. 
D)  provisions for interest rate changes.

Question 17

If a company wished to structure its financing so it repaid funds borrowed only when a project begins to have positive cash flows,it would choose a/an:

Accepted Answer

A)  fully drawn advance. 
B)  term loan. 
C)  interest-only loan. 
D)  deferred payment loan.

Question 18

In relation to an issue of bonds,the method where the bond offer is made only to institutions that deal regularly in securities is called:

Accepted Answer

A)  public issue. 
B)  family issue. 
C)  private placement. 
D)  institutional issue.

Question 19

A positive loan covenant can state that a company must maintain a minimum level of working capital.

Accepted Answer