Question 1

A convertible bond has a par value of $1,000 and a market price of $1,120. If the conversion ratio is 18, what is the conversion price?

Accepted Answer

A)   $62.22
B)   $57.29
C)   $61.08
D)   $55.56
E)   $29.37F) All of the above
G) B) and C)

Question 2

A convertible bond has a $1,000 par value, a 7 percent, semi-annual coupon, and a time to maturity of 6 years. The bond has a conversion ratio of 20. Comparable, non-convertible bonds have a yield to maturity of 6.7 percent. Shares are trading at a price of $54 apiece. What is the minimum price of this bond?

Accepted Answer

A)   $1,080.00
B)   $1,084.32
C)   $1,076.28
D)   $1,065.41
E)   $1,014.54F) C) and E)
G) D) and E)

Question 3

Preferred stock

Accepted Answer

A)   Generally pay a variable coupon payment
B)   Usually has a predetermined maturity date
C)   Will lead a firm into bankruptcy if dividends are not paid on a timely basis
D)   Is usually callable
E)   Is more valuable when it is non-cumulativeF) D) and E)
G) A) and B)

Question 4

Bonds with a high yield and low-grade credit ratings are often referred to as ________.

Accepted Answer

A)   investment grade bonds
B)   junk bonds
C)   yield premium bonds
D)   speculative angel bonds
E)   institutional bondsF) D) and E)
G) C) and E)

Question 5

A bond has a conversion ratio of 15, a $1,000 par value and a market price of $1,120. The stock is selling for $64.50. What is the conversion value?

Accepted Answer

A)   $897.00
B)   $924.50
C)   $967.50
D)   $1,032.00
E)   $1,120.00F) A) and B)
G) None of the above

Question 6

The various provisions within a bond indenture that are designed to protect bondholders by restricting the actions of the issuer are called

Accepted Answer

A)   indentures
B)   protective covenants
C)   placement clauses
D)   debentures
E)   pledge certificatesF) B) and D)
G) B) and C)

Question 7

ABC Corporation has a $1,000 par value, 6% coupon callable convertible bond quoted with a price of 108. The conversion ratio is 12.5. This bond matures in 20 years. The common stock is currently trading at $79.50. The call price is 106. Comparable non-convertible and non-callable bonds sell for 92.

-The conversion price is

Accepted Answer

A)   $79.50
B)   $80.00
C)   $84.80
D)   $86.66
E)   None of the aboveF) A) and C)
G) B) and D)

Question 8

Some companies issue bonds without a credit rating. Given that many institutions have prudent investment guidelines and cannot invest in unrated bonds, why would a company issue unrated bonds?

Accepted Answer

When an unrated bond is issued, it is ge...

Question 9

A serial bond

Accepted Answer

A)   Is assigned a serial number that is used to randomly determine which bonds will be redeemed in any given year
B)   Has a specified maturity date which will vary from the date assigned to other bonds in the same bond issue
C)   Generally has a sinking fund provision
D)   Will generally be callable within three to five years of issue
E)   Has no fixed maturity date, but is redeemed when calledF) A) and D)
G) A) and E)

Question 10

A callable bond with a make whole provision has a par value of $1,000. It has a coupon of 7%, a yield to maturity of 6% and matures in 8 years. If a comparable Canadian treasury note has a yield of 5% and the make-whole call provision provides for a 50 basis point call premium above the comparable treasury note, what is this bond's make whole call price? Assume semi-annual payments.

Accepted Answer

A)   $879.06
B)   $909.29
C)   $939.53
D)   $948.45
E)   $1,096.03F) B) and E)
G) A) and B)

Question 11

The call price of a bond that is equal to the present value of the bond's remaining cash flows is called the _________ call price.

Accepted Answer

A)   Undervalued
B)   Make-whole
C)   Realistic
D)   Tender-offer
E)   Present valueF) A) and D)
G) C) and D)

Question 12

Which of the following is false concerning corporate bonds?

Accepted Answer

A)   Coupon and principal payments are stated in advance when the bond is first issued.
B)   Bonds represent a creditor's claim on the corporation.
C)   Most corporate bonds are callable.
D)   The yield to maturity is constant throughout a bond's life.
E)   Canadian corporate bonds generally have a $1,000 face value.F) A) and B)
G) B) and C)

Question 13

The conversion value of a convertible bond is equal to:

Accepted Answer

A)   Stock price / Conversion ratio.
B)   Par value / Conversion ratio.
C)   Conversion ratio  ×	imes×  Par value.
D)   Conversion ratio / Par value.
E)   Stock price  ×	imes×  Conversion ratio. F) B) and E)
G) A) and E)

Question 14

The yield-to-maturity of a bond is equal to the bond's

Accepted Answer

A)   Internal rate of return
B)   Net present value
C)   Current yield
D)   Yield-to-call
E)   Realized returnF) C) and D)
G) A) and B)

Question 15

Which of the following are bond provisions commonly used to restrict an issuer's call privilege?
I Deferred Call Provision
II Retractable Provision
III Call Premium Provision
IV Refunding Provision

Accepted Answer

A)   II, III and IV only
B)   I, III and IV only
C)   III only
D)   II only
E)   I, II and IV onlyF) D) and E)
G) A) and B)

Question 16

The description of the contractual terms for a new bond issue in a prospectus is the _________.

Accepted Answer

A)   debenture
B)   summary sheet
C)   Indenture
D)   trust report
E)   ProspectusF) A) and E)
G) A) and D)

Question 17

You want to purchase bonds such that a fraction of them mature each year, which would provide you with vacation money. Your need may be best served by investing in the _________ bonds offered by a reputable corporation.

Accepted Answer

A)   Sinking fund
B)   Callable
C)   Unsecured
D)   Serial
E)   Mortgage-backedF) C) and D)
G) D) and E)

Question 18

Bonds have floating-rate coupons are called _________ bonds.

Accepted Answer

A)   indexed
B)   Market
C)   adjustable rate
D)   junk
E)   speculativeF) A) and B)
G) A) and C)

Question 19

In the case of a default, the holder of a debenture has a claim on _________ of the issuer.

Accepted Answer

A)   Nothing
B)   Only the current assets
C)   Only the net fixed assets
D)   Only the working capital
E)   All the assetsF) B) and E)
G) B) and D)

Question 20

A convertible bond has a $1,000 par value, a 7 percent, semi-annual coupon, and a time to maturity of 11 years. The bond has a conversion ratio of 12. Comparable, non-convertible bonds have a yield to maturity of 6.8 percent. What is the intrinsic value of this bond?

Accepted Answer

A)   $1,015.15
B)   $1,015.32
C)   $1,016.28
D)   $1,016.41
E)   $1,016.54F) C) and E)
G) C) and D)

Exam 18: Corporate Bonds

In the case of a default, the holder of a debenture has a claim on _________ of the issuer.

Correct Answer
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A serial bond

Correct Answer
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The yield-to-maturity of a bond is equal to the bond's

Correct Answer
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A convertible bond has a par value of $1,000 and a market price of $1,120. If the conversion ratio is 18, what is the conversion price?

Correct Answer
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Bonds have floating-rate coupons are called _________ bonds.

Correct Answer
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Which of the following are bond provisions commonly used to restrict an issuer's call privilege? I Deferred Call Provision II Retractable Provision III Call Premium Provision IV Refunding Provision

Correct Answer
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The description of the contractual terms for a new bond issue in a prospectus is the _________.

Correct Answer
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Bonds with a high yield and low-grade credit ratings are often referred to as ________.

Correct Answer
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You want to purchase bonds such that a fraction of them mature each year, which would provide you with vacation money. Your need may be best served by investing in the _________ bonds offered by a reputable corporation.

Correct Answer
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Preferred stock

Correct Answer
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Correct Answer
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Which of the following is false concerning corporate bonds?

Correct Answer
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Correct Answer
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A bond has a conversion ratio of 15, a $1,000 par value and a market price of $1,120. The stock is selling for $64.50. What is the conversion value?

Correct Answer
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The various provisions within a bond indenture that are designed to protect bondholders by restricting the actions of the issuer are called

Correct Answer
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Correct Answer
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Some companies issue bonds without a credit rating. Given that many institutions have prudent investment guidelines and cannot invest in unrated bonds, why would a company issue unrated bonds?

Correct Answer
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When an unrated bond is issued, it is ge...
View Answer

The call price of a bond that is equal to the present value of the bond's remaining cash flows is called the _________ call price.

Correct Answer
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The conversion value of a convertible bond is equal to:

Correct Answer
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A convertible bond has a $1,000 par value, a 7 percent, semi-annual coupon, and a time to maturity of 11 years. The bond has a conversion ratio of 12. Comparable, non-convertible bonds have a yield to maturity of 6.8 percent. What is the intrinsic value of this bond?

Correct Answer
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Exam 18: Corporate Bonds

In the case of a default, the holder of a debenture has a claim on _________ of the issuer.

Correct AnswerverifiedShow Answer

A serial bond

Correct AnswerverifiedShow Answer

The yield-to-maturity of a bond is equal to the bond's

Correct AnswerverifiedShow Answer

A convertible bond has a par value of $1,000 and a market price of $1,120. If the conversion ratio is 18, what is the conversion price?

Correct AnswerverifiedShow Answer

Bonds have floating-rate coupons are called _________ bonds.

Correct AnswerverifiedShow Answer

Which of the following are bond provisions commonly used to restrict an issuer's call privilege? I Deferred Call Provision II Retractable Provision III Call Premium Provision IV Refunding Provision

Correct AnswerverifiedShow Answer

The description of the contractual terms for a new bond issue in a prospectus is the _________.

Correct AnswerverifiedShow Answer

Bonds with a high yield and low-grade credit ratings are often referred to as ________.

Correct AnswerverifiedShow Answer

You want to purchase bonds such that a fraction of them mature each year, which would provide you with vacation money. Your need may be best served by investing in the _________ bonds offered by a reputable corporation.

Correct AnswerverifiedShow Answer

Preferred stock

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is false concerning corporate bonds?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A bond has a conversion ratio of 15, a $1,000 par value and a market price of $1,120. The stock is selling for $64.50. What is the conversion value?

Correct AnswerverifiedShow Answer

The various provisions within a bond indenture that are designed to protect bondholders by restricting the actions of the issuer are called

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Some companies issue bonds without a credit rating. Given that many institutions have prudent investment guidelines and cannot invest in unrated bonds, why would a company issue unrated bonds?

Correct AnswerverifiedWhen an unrated bond is issued, it is ge...View AnswerShow Answer

The call price of a bond that is equal to the present value of the bond's remaining cash flows is called the _________ call price.

Correct AnswerverifiedShow Answer

The conversion value of a convertible bond is equal to:

Correct AnswerverifiedShow Answer

A convertible bond has a $1,000 par value, a 7 percent, semi-annual coupon, and a time to maturity of 11 years. The bond has a conversion ratio of 12. Comparable, non-convertible bonds have a yield to maturity of 6.8 percent. What is the intrinsic value of this bond?

Correct AnswerverifiedShow Answer

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When an unrated bond is issued, it is ge...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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