Chapter 24 Quiz, Valuing Debt




1. A "yankee" bond is a bond:
A.Sold in the United States by a company in the USA
B.Sold in the United States by a company from some other country
C.Sold in Europe by a company from the United States
D.None of the above


2. The written agreement between a corporation and the bondholder's representative is called:
A.The debenture
B.The collateral maintenance agreement
C.The indenture
D.The prospectus


3. In general:
A.Bonds issued in the United States are registered
B.Bonds issued in the United States are bearer bonds
C.Eurobonds are registered
D.Eurobonds are bearer bonds
E.A and D


4. The Alfa Co. has a 12% bond outstanding which pays interest on February 1st and July 1st. Today is March 1st and you are planning to purchase one of these bonds/ How much will you pay in accrued interest?
A.$60
B.$20
C.$10
D.None of the above


5. Which of the following loans is typically secured?
A.Sinking fund debenture
B.Mortgage bond
C.Floating rate note
D.Eurobond
E.None of the above


6. Floating-rate bonds have adjustable rates to protect real rates of return against inflation. The rates paid are limited by:
A.The put provisions of the issues
B.A floor rate which sets the minimum
C.A cap rate which sets the maximum
D.B and C


7. Which of the following loans is typically not secured?
A.Collateral trust bond
B.Mortgage bond
C.Floating rate note
D.Equipment trust certificate
E.None of the above


8. Which of the following loans is typically secured?
A.Equipment trust certificate
B.Debenture
C.Floating rate note
D.Sinking fund debenture
E.None of the above


9. A sinking fund is useful to bondholders because:
A.It stops the company from going under or into default
B.The funds are usable at the option of the bondholders
C.When a firm has difficulty making payments this sends a signal of potential default
D.A large payment is necessary to fully pay off the bonds at maturity


10. A 7% debenture (face value $1000) pays interest on June 30 and December 31. It is callable at a price of 110% together with accrued interest. Suppose the company decides to call the bonds on November 30. What price must it pay for each bond?
A.$1129
B.$1171
C.$1070
D.$1100


11. Which of the following is not an example of an affirmative (positive) covenant?
A.Requirement to maintain a minimum level of working capital
B.Requirement to furnish bondholders with a copy of the firm's annual accounts
C.Requirement to maintain a minimum level of net worth
D.Requirement to limit dividends to net income


12. Zero-coupon bonds are also called:
A.Original issue discount bonds
B.Pure discount bonds
C.Deep discount bonds
D.All of the above


13. Bonds issued in the United States are usually registered.
A.True
B.False


14. Bonds issued by risky companies generally have larger sinking fund requirements.
A.True
B.False


15. A negative pledge clause states that the company may grant an exclusive lien or claim on any of its assets.
A.True
B.False



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