Bonds backed by assets with long-term payments are referred to asA) payment bonds.B) time value bonds.C) securitized bonds.D) cash-flow bonds.E) inflation bonds.The upper and lower limits on the coupon rate of a floating-rate bond are referred to as the bond'sA) put.B) "make-whole" provision.C) call.D) income limit.E) collar.Which one of these definitions is correct?A) Negative covenant: a "thou shalt" agreementB) Premium bond: bond that sells for less than face valueC) Dirty price: market price, excluding accrued interestD) Call provision: issuer's right to repurchase a bond prior to maturityE) Unfunded debt: long-term corporate debtThe return on equity can be calculated asA) Profit margin × 1 / Capital intensity ratio × Equity multiplierB) Return on assets × bC) Profit margin × Total asset turnover × Debt-equity ratioD) Profit margin × 1 / Equity multiplier × (1 + Debt-equity ratio)E) Return on assets × Debt-equity ratioDebt securitiesA) increase a firm's cost of doing business.B) pay tax-deductible dividends.C) are treated the same as equity securities in a bankruptcy proceeding.D) represent a minority ownership interest in the issuer.E) are considered a liability only at the time payment is actually due.Bond ratingsA) are provided solely by Moody's.B) only assess the possibility of default.C) of B or higher are considered investment-grade ratings.D) consider interest rate risk.E) of C indicate an average level of risk.A sinking fundA) is a claim on assets not otherwise pledged as security.B) is used solely to retain funds until a bond issue matures.C) is managed by a trustee.D) is established during a bankruptcy proceeding to repay secured debts.E) ensures all bonds are repaid prior to the original maturity date.Two of the primary differences between a corporate bond and a Treasury bond with identical maturity dates are related toA) interest rate risk and time value of money.B) time value of money and inflation.C) taxes and potential default.D) taxes and inflation.E) inflation and interest rate risk.Protective covenantsA) are primarily designed to protect bondholders from future actions of the bond issuer.B) only apply to bonds that have a deferred call provision.C) are limited to stating actions that a firm must take.D) are consistent for all bonds issued by a corporation within the United States.E) are designed to protect the issuer should it default.A bond with both a face value and a market value of $1,000 is called a ________ bond.A) par valueB) premiumC) discountD) zero couponE) floating rateYesterday, ABC stock sold for $28 a share. Today, the overall market fell, and ABC stock is now selling for $22 a share. Which of these ratios for ABC will be affected by this market reaction? Assume all else is held constant.A) Enterprise value multiple and price-earnings ratioB) Earnings per share and price-earnings ratioC) Return on equity and return on assetsD) Return on book equity and market-to-book ratioE) Price-earnings ratio and return on book equityBonds that protect insurance companies from losses arising from natural disasters are called ________ bonds.A) deathB) CATC) hurricaneD) flood insuranceE) DOGThe yield to maturity on a bond is the rateA) computed as the annual interest divided by the bond's market price.B) an investor earns if the bond is sold prior to the maturity date.C) of annual interest initially offered when the bond was issued.D) of return currently required by the market.E) of annual interest paid on the bond.The lowest Moody's bond rating that is considered to be an investment-grade rating isA) A.B) Baa.C) BBB.D) Ba.E) BB.Long-term debt securities that are issued but not offered to the general public are referred to asA) privately placed.B) zero coupon bonds.C) internal debt.D) equity securities.E) unfunded debt.All else constant, as the market price of a bond increases the current yield ________ and the yield to maturity ________.A) decreases; decreasesB) increases; decreasesC) increases; increasesD) decreases; increasesE) remains constant; increasesIf the bond holder has any rights that can force repayment of the bond prior to maturity, the bondA) is an income bond.B) has a call provision.C) is convertible.D) is a structured note.E) has a put provision.The written, legally binding agreement between a corporate borrower and its lenders detailing all of the terms of a bond issue is called theA) indenture.B) covenant.C) terms of trade.D) put provision.E) call provision.The parts of an indenture that protect the interests of the lender by limiting certain actions that a company might take during the term of the loan are calledA) deferred call provisions.B) sinking funds provisions.C) protective covenants.D) trustee relationships.E) bond ratings.If a non-dividend-paying firm bases its growth assumptions on the sustainable rate of growth and shows positive net income, then the pro forma statement must reflectA) an increase in fixed assets irrespective of the firm's current operating capacity.B) an increase in both sales and the debt-equity ratio.C) both an increase in the total asset turnover and in the equity multiplier.D) a constant debt-equity ratio and an increase in retained earnings.E) increases in fixed assets, the debt-equity ratio, and the number of shares outstanding.
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