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Multiple Choice
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1

A "yankee" bond is a bond:
A)Sold in the United States by a company in the United States
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 authorized by the SEC
4

The Alfa Co. has a 12% bond outstanding which pays interest on February 1 and July 1. Today is March 1 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
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
8

Which of the following loans is typically secured?
A)Equipment trust certificate
B)Debenture
C)Floating rate note
D)Sinking fund debenture
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
16

A mortgage backed security has an indirect claim on
A)homes
B)cars
C)stocks
D)bonds
17

The recovery rate is highest on
A)bank debt
B)senior secured debt
C)senior subordinated debentures
D)senior unsecured debt
18

The lowest recovery rate is on
A)bank debt
B)senior secured debt
C)senior subordinated debentures
D)senior unsecured debt
19

The call feature of a bond creates a ______ on the bond price.
A)Floor
B)Ceiling
C)Guaranteed return
D)Par value
20

A poison put obligates the borrower to repay the loan if there is a change or corporate ownership.
A)True
B)False
21

The risk of loss of value to a major announcement is sometimes called.
A)Price risk
B)Event risk
C)Market risk
D)Financial risk
22

The convertible bond combines a basic bond and
A)another bond
B)a call option
C)a put option
D)a loan guarantee
23

A firm might insert a forced conversion clause in a convertible bond to exercise when the stock price gets too high.
A)True
B)False





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