Question 1

Under a term loan the borrower agrees to make a series of amortized payments on specific dates.Although speed and flexibility are two advantages of term loans,such loans typically have high issuance costs.

Accepted Answer

A) True 
 B)False  False

Question 2

A company is planning to raise $1,000,000 to finance a new plant.Which of the following statements is correct?

Accepted Answer

A)   If debt is used to raise the million dollars,the cost of the debt would be lower if the debt is in the form of a fixed rate bond rather than a floating rate bond.
B)   If debt is used to raise the million dollars,the cost of the debt would be lower if the debt is in the form of a bond rather than a term loan.
C)   If debt is used to raise the million dollars,but $500,000 is raised as a first mortgage bond on the new plant and $500,000 as debentures,the interest rate on the first mortgage bond would be lower than it would be if the entire $1 million were raised by selling first mortgage bonds.
D)   The company would be especially anxious to have a call provision included in the indenture if its management thinks that interest rates are almost certain to rise in the foreseeable future.
E)   All of the above statements are false.F) A) and B)
G) C) and E)

Question 3

Assume the securities are all issued by the same firm.From the investor's standpoint,rank the following securities in order of increasing risk (the number of the least risky security is placed first,or to the left,in the answer set) . 
(1) Preferred stock.
(2) Income bonds.
(3) Convertible preferred stock.
(4) Mortgage bonds.

Accepted Answer

A)   1,2,3,4
B)   4,1,2,3
C)   4,1,3,2
D)   4,2,1,3
E)   4,2,3,1F) B) and C)
G) B) and D)

Question 4

A protective feature on preferred stock that requires preferred dividends previously not paid to be disbursed before any common stock dividends can be paid is called what?

Accepted Answer

A)   cumulative dividends
B)   callable dividends
C)   putable dividends
D)   historical dividends
E)   paid dividendsF) All of the above
G) B) and E)

Question 5

A junk bond is a high risk,high yield debt instrument typically used to finance a leveraged buyout or a merger,or to provide financing to a company of questionable financial strength.

Accepted Answer

A) True 
 B)False  True

Question 6

Which of the following statements is correct?

Accepted Answer

A)   All common stock must have full voting rights.
B)   While firms are allowed to issue different classes of common stock,the Securities and Exchange Commission (SE
C)  requires that each class have the same dividend privileges.
C)   The New York Stock Exchange (NYS
E)  allows firms with dual class stock to be listed on the exchange.
D)   In order to increase a stock's liquidity,investment bankers generally require that insiders sell some percentage of their shares after a firm has undergone an initial public offering (IPO) .
E)   When a firm raises capital,investment bankers enter into a "best efforts" arrangement which guarantees that the securities will be sold.F) B) and E)
G) A) and E)

Question 7

Although common stock represents a riskier investment to an individual than do bonds,in the sense of exposing the firm to the risk of bankruptcy,bonds represent a riskier method of financing to a corporation than does common stock.

Accepted Answer

A) True 
 B)False

Question 8

Convertible securities are bonds or preferred stocks that,under specified terms and conditions,can be exchanged for common stock at the option of the holder.

Accepted Answer

A) True 
 B)False

Question 9

The preemptive right is important to shareholders because it

Accepted Answer

A)   Allows management to sell additional shares below the current market price.
B)   Protects the current shareholders against dilution of ownership interests.
C)   Is included in every corporate charter.
D)   Will result in higher dividends per share.
E)   The preemptive right is not important to shareholders.F) A) and E)
G) B) and C)

Question 10

A call provision gives bondholders the right to demand,or "call for," repayment of a bond.Typically,calls are exercised if interest rates rise,because when rates rise the bondholder can get the principal amount back and reinvest it elsewhere at higher rates.

Accepted Answer

A) True 
 B)False

Question 11

The interest rate paid on Eurodollar deposits depends on the particular bank's lending rate and on rates of return available on U.S.money market instruments.

Accepted Answer

A) True 
 B)False

Question 12

T-bills are issued electronically with face values ranging from $1,000 to $5 million and with maturities of 4,13,26,or 52 weeks at the time of issue.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements concerning common stock and the investment banking process is false?

Accepted Answer

A)   The preemptive right gives each existing common stockholder the right to purchase his or her proportionate share of a new stock issue.
B)   If a firm sells 1,000,000 new shares of Class B stock,the transaction occurs in the primary market.
C)   Listing a large firm's stock is often considered to be beneficial to stockholders because the increases in liquidity and status probably outweigh the additional costs to the firm.
D)   Stockholders have the right to elect the firm's directors,who in turn select the officers who manage the business.If stockholders are dissatisfied with management's performance,an outside group may ask the stockholders to vote for it in an effort to take control of the business.This action is called a margin call.
E)   A large issue of new stock could cause the stock price to fall.This loss is called "market pressure," and it is treated as a flotation cost because it is a cost associated with the new issue.F) B) and D)
G) B) and C)

Question 14

Which of the following is NOT a source of equity on a firm's balance sheet?

Accepted Answer

A)   additional paid-in capital
B)   retained earnings
C)   common stock
D)   property,plant,and equipmentE) C) and D)
F) A) and C) D

Question 15

Which of the following factors does not influence a firm's long-term financing decisions?

Accepted Answer

A)   Its target capital structure.
B)   Maturity matching considerations.
C)   Comparative costs of financing alternatives.
D)   Availability of collateral.
E)   All of the above factors may influence a firm's long-term financing decisions.F) A) and E)
G) B) and C)

Question 16

Companies can issue different classes of common stock.Which of the following statements concerning stock classes is correct?

Accepted Answer

A)   All common stocks fall into one of three classes: A,B,and C.
B)   Most firms have several classes of common stock outstanding.
C)   All common stock,regardless of class,must have voting rights.
D)   All common stock,regardless of class,must have the same dividend privileges.
E)   None of the above statements is necessarily true.F) A) and B)
G) D) and E)

Question 17

Eurodebt is the term used to designate

Accepted Answer

A)   Debt sold by a foreign borrower that is denominated in the currency of the country where it is sold.
B)   European bank loans that are denominated in the new Euro currency.
C)   Debt that is denominated in a currency that is different than the currency of the country in which it is sold.
D)   Equity instruments of one country that are sold in another country.
E)   The certificates that represent ownership in foreign companies that are sold in the United States.F) B) and E)
G) A) and E)

Question 18

When a corporation's shares are owned by a few individuals who are associated with the firm's management,we say that the firm is "closely held."

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements is correct?

Accepted Answer

A)   Once a firm declares bankruptcy,it is liquidated by the trustee,who uses the proceeds to pay bondholders,unpaid wages,taxes,and lawyer fees.
B)   A firm with a sinking fund payment coming due would generally choose to buy back bonds in the open market,if the price of the bond exceeds the sinking fund call price.
C)   Income bonds pay interest only when the amount of the interest is actually earned by the company.Thus,these securities cannot bankrupt a company and this makes them riskier to investors than regular bonds.
D)   One disadvantage of zero-coupon bonds is that issuing firms cannot realize the tax savings from issuing debt until the bonds mature.
E)   Other things held constant,callable bonds should have a lower yield to maturity than noncallable bonds.F) A) and D)
G) C) and D)

Question 20

Of the following provisions that might be found in a bond indenture,which would tend to reduce the coupon interest rate on the bond in question?

Accepted Answer

A)   A subordination clause in a debenture.
B)   A call provision.
C)   A convertible feature.
D)   Having relatively few restrictive covenants.
E)   All of the above.F) D) and E)
G) C) and D)

Exam 2: Financial Assets Instruments

Under a term loan the borrower agrees to make a series of amortized payments on specific dates.Although speed and flexibility are two advantages of term loans,such loans typically have high issuance costs.

Correct Answer
verified
False

A company is planning to raise $1,000,000 to finance a new plant.Which of the following statements is correct?

Correct Answer
verified

Correct Answer
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A protective feature on preferred stock that requires preferred dividends previously not paid to be disbursed before any common stock dividends can be paid is called what?

Correct Answer
verified

A junk bond is a high risk,high yield debt instrument typically used to finance a leveraged buyout or a merger,or to provide financing to a company of questionable financial strength.

Correct Answer
verified
True

Which of the following statements is correct?

Correct Answer
verified

Although common stock represents a riskier investment to an individual than do bonds,in the sense of exposing the firm to the risk of bankruptcy,bonds represent a riskier method of financing to a corporation than does common stock.

Correct Answer
verified

Convertible securities are bonds or preferred stocks that,under specified terms and conditions,can be exchanged for common stock at the option of the holder.

Correct Answer
verified

The preemptive right is important to shareholders because it

Correct Answer
verified

A call provision gives bondholders the right to demand,or "call for," repayment of a bond.Typically,calls are exercised if interest rates rise,because when rates rise the bondholder can get the principal amount back and reinvest it elsewhere at higher rates.

Correct Answer
verified

The interest rate paid on Eurodollar deposits depends on the particular bank's lending rate and on rates of return available on U.S.money market instruments.

Correct Answer
verified

T-bills are issued electronically with face values ranging from $1,000 to $5 million and with maturities of 4,13,26,or 52 weeks at the time of issue.

Correct Answer
verified

Which of the following statements concerning common stock and the investment banking process is false?

Correct Answer
verified

Which of the following is NOT a source of equity on a firm's balance sheet?

Correct Answer
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D

Which of the following factors does not influence a firm's long-term financing decisions?

Correct Answer
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Companies can issue different classes of common stock.Which of the following statements concerning stock classes is correct?

Correct Answer
verified

Eurodebt is the term used to designate

Correct Answer
verified

When a corporation's shares are owned by a few individuals who are associated with the firm's management,we say that the firm is "closely held."

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

Of the following provisions that might be found in a bond indenture,which would tend to reduce the coupon interest rate on the bond in question?

Correct Answer
verified

Exam 2: Financial Assets Instruments

Under a term loan the borrower agrees to make a series of amortized payments on specific dates.Although speed and flexibility are two advantages of term loans,such loans typically have high issuance costs.

Correct AnswerverifiedFalse

A company is planning to raise $1,000,000 to finance a new plant.Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A protective feature on preferred stock that requires preferred dividends previously not paid to be disbursed before any common stock dividends can be paid is called what?

Correct AnswerverifiedShow Answer

A junk bond is a high risk,high yield debt instrument typically used to finance a leveraged buyout or a merger,or to provide financing to a company of questionable financial strength.

Correct AnswerverifiedTrue

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Although common stock represents a riskier investment to an individual than do bonds,in the sense of exposing the firm to the risk of bankruptcy,bonds represent a riskier method of financing to a corporation than does common stock.

Correct AnswerverifiedShow Answer

Convertible securities are bonds or preferred stocks that,under specified terms and conditions,can be exchanged for common stock at the option of the holder.

Correct AnswerverifiedShow Answer

The preemptive right is important to shareholders because it

Correct AnswerverifiedShow Answer

A call provision gives bondholders the right to demand,or "call for," repayment of a bond.Typically,calls are exercised if interest rates rise,because when rates rise the bondholder can get the principal amount back and reinvest it elsewhere at higher rates.

Correct AnswerverifiedShow Answer

The interest rate paid on Eurodollar deposits depends on the particular bank's lending rate and on rates of return available on U.S.money market instruments.

Correct AnswerverifiedShow Answer

T-bills are issued electronically with face values ranging from $1,000 to $5 million and with maturities of 4,13,26,or 52 weeks at the time of issue.

Correct AnswerverifiedShow Answer

Which of the following statements concerning common stock and the investment banking process is false?

Correct AnswerverifiedShow Answer

Which of the following is NOT a source of equity on a firm's balance sheet?

Correct AnswerverifiedD

Which of the following factors does not influence a firm's long-term financing decisions?

Correct AnswerverifiedShow Answer

Companies can issue different classes of common stock.Which of the following statements concerning stock classes is correct?

Correct AnswerverifiedShow Answer

Eurodebt is the term used to designate

Correct AnswerverifiedShow Answer

When a corporation's shares are owned by a few individuals who are associated with the firm's management,we say that the firm is "closely held."

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Of the following provisions that might be found in a bond indenture,which would tend to reduce the coupon interest rate on the bond in question?

Correct AnswerverifiedShow Answer

Correct Answer
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False

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True

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D

Correct Answer
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