Question;51. The size of the loan and its issuance costs (as a;percentage of the amount borrowed) are;A) not related.;B) inversely related.;C) independent.;D) correlated.;52. A call feature is a feature included in all;corporate bonds and allows the issuer to repurchase bonds at the market price;prior to maturity.;53. There is an inverse relationship between;the quality or rating of a bond and the rate of return it must;provide bondholders;54. In a bond indenture, subordination is the;stipulation that subsequent creditors agree to wait until all claims of the;senior debt are satisfied.;55. Bondholders will convert their convertible bonds;into shares of stock only when the conversion price is greater than the market;price of the stock.;56. To sell a callable bond, the issuer must pay a;higher interest rate than on an otherwise equivalent noncallable bond;57. The conversion feature of a bond is a feature that;is included in all corporate bond issues that gives the issuer the opportunity;to repurchase bonds at a stated price prior to maturity.;58. A call feature in a bond allows the issuer the;opportunity to repurchase bonds at a stated price prior to maturity. This;option has a greater chance of being exercised (to the detriment of the;bondholder) if market interest rates have risen since the bond was issued.;59. In general, IBM bonds will experience greater;trading activity (in terms of the number of bonds traded on a given day);compared to IBM stock.;60. In general, IBM bonds will experience less trading;activity (in terms of the number of bonds traded on a given day) compared to;IBM stock.;61. Any bond rated according to;Moody's Caa through Aaa would be considered investment;grade debt;62. Any bond rated according to Moody's Ba or;lower would be considered speculative or "junk;63. A feature that gives the issuer the opportunity to;repurchase bonds at a stated price prior to maturity is called;A) stock purchase warrants.;B) call feature.;C) conversion feature.;D) none of the above.;64. An instrument that give their holders the right to;purchase a certain number of shares of the firm's common stock at a specified;price over a certain period of time is called;A) stock purchase warrants.;B) call feature.;C) conversion feature.;D) none of the above.;65. The riskiness of publicly traded bond issues is;rated by independent agencies. According to Moody's rating system;an Aaa bond and a Caa bond are ________ and;respectively.;A) speculative, investment grade;B) prime quality, medium grade;C) prime quality, speculative;D) medium grade, lowest grade;66. A putable bond;gives the bondholder;A) the right to sell the bond back to the;corporation at the original purchase price.;B) the right to sell the bond back to the;corporation at a stated premium.;C) the right to sell the bond back to the;corporation at the current market value.;D) the right to sell the bond back to the;corporation at par.;67. A record collector has agreed to sell her entire;collection to a historical museum in three years at a price of $100,000. The;current risk-free;rate is 7 percent. At what price should she value her collection today?;68. A corporate financial analyst must calculate the;value of an asset which produces year-end annual cash flows of $0 the first year, $2,000;the second year, $3,000 the third year, and $2,500 the fourth year. Assuming a;discount rate of 15 percent, what is the value of this asset?;69. What is the value of an asset which pays $200 a;year for the next 5 years and can be sold for $1,500 at the end of five years;from now? Assume that the opportunity cost is 10 percent.;70. When the required return is constant but different;from the coupon rate, the price of a bond as it approaches its maturity date;will;A) remain constant.;B) increase.;C) decrease.;D) approach par.;71. If the required return is greater than the coupon;rate, a bond will sell at;A) par.;B) a discount.;C) a premium.;D) book value.;72. The ABC company has two bonds outstanding;that are the same except for the maturity date. Bond D matures in 4 years;while Bond E matures in 7 years. If the required return changes by 15 percent;A) Bond D will have a greater change in price.;B) Bond E will have a greater change in price.;C) the price of the bonds will be;constant.;D) the price change for the bonds will be;equal.;73. A firm has an issue of $1,000 par value bonds with;a 12 percent stated interest rate outstanding. The issue pays interest annually;and has 10 years remaining to its maturity date. If bonds of similar risk are;currently earning 8 percent, the firm's bond will sell for ________ today.;A) $1,000;B) $805.20;C) $851.50;D) $1,268.20;74. On January 1, 2002, Zheng Corporation;will issue new bonds to finance its expansion plans. In its efforts to price the;issue, Zheng Corporation has identified a company of similar risk;with an outstanding bond issue that has an 8 percent coupon rate that is due;January 1, 2017. This firm's bonds currently are selling for $1,091.96. If;interest is paid semiannually for both bonds, what must the coupon rate of the;new bonds be in order for the issue to sell at par?;A) 5.75%;B) 6.00%;C) 6.50%;D) 7.00%;75. To expand its business, the Kingston Outlet factory;would like to issue a bond with par value of $1,000, coupon rate of 10 percent;and maturity of 10 years from now. What is the value of the bond if the;required rate of return is 1) 8 percent, 2) 10 percent, and 3) 12 percent?
Paper#50915 | Written in 18-Jul-2015Price : $22