Question 1

Why are bond covenants necessary?

Accepted Answer

The answer of Why are bond covenants necessary?...

Question 2

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

Accepted Answer

A) It can be tailored to the particular situation. 
B) It is less costly to issue. 
C) It does not need to be registered with the securities commission. 
D) It is freely tradable on the bond market. 
E) It is sold to a small group of investors.

Question 3

When a callable bond sells at a discount,the bond's coupon rate is ________ than market yields and the yield to worst is the yield to ________.

Accepted Answer

A) higher,call 
B) higher,maturity 
C) lower,call 
D) lower,maturity 
E) higher,par

Question 4

Different classes of securities that make up a single bond issuance are called:

Accepted Answer

A) subordinated debentures. 
B) unsecured debt. 
C) sen ior debt. 
D) secured debt. 
E) tranches.

Question 5

A bond has a face value of $10,000 and a conversion ratio of 265.The stock is currently trading at $38.80.What is the conversion price?

Accepted Answer

A) $1.56 
B) $5.84 
C) $25.73 
D) $26.50 
E) $37.74

Question 6

Tompkinson's PLC,a British company,issues a bond in Canadian dollars in Canada,intended for Canadian investors.Which of the following best describes this bond?

Accepted Answer

A) a foreign bond 
B) a Eurobond 
C) a global bond 
D) a Yankee bond 
E) a Maple bond

Question 7

A company issues a callable (at par)ten-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 yield to call of 3.1%.What is the price of this bond per $100 of face value when it is released?

Accepted Answer

A) $103.78 
B) $100.00 
C) $107.00 
D) $96.36 
E) $133.10

Question 8

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 yield to call of 4.8%.What is the price of this bond per $100 of face value when it is released?

Accepted Answer

A) $101.15 
B) $109.36 
C) $100.00 
D) $104.80 
E) $95.42

Question 9

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 
E) revolving line of credit

Question 10

A company issues a 20-year,callable bond at par with a 6% annual coupon.The bond can be called at par in three years or any time after that on a coupon payment date.The call price is $110 per $100 of face value.What is the yield to call?

Accepted Answer

A) 4% 
B) 6% 
C) 8% 
D) 9% 
E) 12%

Question 11

In terms of public offerings of bonds,what is a prospectus?

Accepted Answer

A) a list of the duties of the trust company representing the bondholders' interests 
B) a memorandum that must be produced to describe the details of a bond offering 
C) a formal contract that specifies the firm's obligations to the bondholders 
D) a schedule of the fees charged by the underwriting company 
E) a registration filing with the securities commission

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 call of this bond when it is released?

Accepted Answer

A) 0.60% 
B) 1.50% 
C) 1.92% 
D) 5.47% 
E) 6.00%

Question 13

Characteristics of Sovereign Debt are:

Accepted Answer

A) It is issued by a national government and sold to financial market distributors in the primary market. 
B) It is issued by both federal and provincial (state)governments 
C) The primary offering of Government of Canada bonds are made available to all potential investors. 
D) Sovereign debt is restricted to marketable bonds that trade actively in the secondary market. 
E) All Government of Canada long-term bonds are issued with fixed coupons and pay interest on a semi-annual basis.

Question 14

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 $105 per $100 of face value.What is the yield to call if this bond is called in one year?

Accepted Answer

A) 5% 
B) 8% 
C) 10% 
D) 11% 
E) 13%

Question 15

A bond has a face value of $10,000 and a conversion ratio of 560.The stock is currently trading at $16.30.What is the conversion price?

Accepted Answer

A) $1.56 
B) $6.13 
C) $16.30 
D) $17.86 
E) $56.00

Question 16

What are callable bonds?

Accepted Answer

The answer of What are callable bonds?...

Question 17

A callable bond with the call price set equal to the present value of the bond's remaining payments is a:

Accepted Answer

A) convertible bond. 
B) straight bond. 
C) par call. 
D) Yankee call. 
E) Canada call.

Question 18

Which of the following statements concerning the use of sinking funds to repurchase a bond issue is most correct?

Accepted Answer

A) The firm makes a single payment into a sinking fund administered by a trustee at the beginning of the life of the bond. 
B) The firm can reduce the amount of outstanding debt without affecting the cash flows of the remaining bonds. 
C) Payments into the sinking fund are held in reserve to protect the firm from default. 
D) Bonds can be issued with a sinking fund provision or a call provision,but not both. 
E) Sinking fund provisions require the issuer to repay the entire principal balance on the maturity date.

Question 19

Which of the following statements about bonds that are both convertible and callable is most correct?

Accepted Answer

A) If these bonds are called by the issuer,the holder has no option other than to let them be called. 
B) Prior to maturity,the value of such a bond will be greater than the shares of stock that bond can be converted into. 
C) The decision to be made by the bondholder when the bonds are called is the same as she would have to make at maturity. 
D) The issuer cannot force bondholders to decide whether or not to convert at a time of the issuer's choosing. 
E) Prior to the maturity date,a convertible bond is worth less than an otherwise identical straight bond.

Question 20

A firm issues the convertible debt shown above.The price of stock in this company on July 1,2008 is $28.20.What is the minimum conversion ratio that would make a bondholder prefer to convert rather than accept the call price?

Accepted Answer

A) 32 shares per $1000 principal amount 
B) 35 shares per $1000 principal amount 
C) 37 shares per $1000 principal amount 
D) 41 shares per $1000 principal amount 
E) 45 shares per $1000 principal amount

Exam 15: Debt Financing