Finance Questions

A crossover bond is a bond thatA) was previously in default but is now current with its debt obligations.B) was issued by a non-U.S. entity but is held by a U.S. party.C) has both an investment-grade and a low-grade rating.D) was issued as investment-grade but is currently rated as low-grade.E) is rated by both a U.S. and a non-U.S. rating agency.

For tax purposes, the implicit annual interest for any one year on a zero coupon bond is equal toA) zero.B) the annual change in the bond's value as determined by amortizing the loan.C) the current yield.D) the face value multiplied by the current market rate of interest.E) the face value minus the current market value.

Financial planning, when properly executedA) helps ensure that adequate financing is in place to support the desired level of growth.B) ensures that the primary goals of senior management are fully achieved.C) reduces the necessity of daily management oversight of the business operations.D) ignores the normal restraints encountered by a firm.E) eliminates the need to plan more than 1 year in advance.

A deferred call provision is designed toA) guarantee a bond will be repaid on a certain date prior to maturity.B) prohibit the calling of a bond prior to a certain date.C) ensure bond holders receive full value when a bond is called.D) ensure any bankruptcy of the issuer is deferred until a bond is repaid in full.E) ensure the owner of a bond agrees to the call before a bond is called.

All else constant, a bond will sell at ________ when the yield to maturity is ________ the coupon rate.A) par; less thanB) a premium; equal toC) par; higher thanD) a discount; higher thanE) a premium; higher than

Bonds issued by the U.S. governmentA) are considered to be default-free.B) are exempt from interest-rate risk.C) provide totally tax-free income.D) pay interest that is exempt from federal income tax.E) are taxed the same as municipal bonds.

Which of the following represent problems encountered when comparing the financial statements of one firm with those of another firm?I. The firms may have unrelated lines of business.II. The operations of the two firms may vary geographically.III. The firms may use differing accounting methods.IV. The two firms may be regulated differently.A) I and II onlyB) II and III onlyC) I, III, and IV onlyD) I, II, and III onlyE) I, II, III, and IV

ABC bonds have a coupon rate of 9 percent, pay interest semiannually, and sell at par. Each of these bonds has a market price of ________ and interest payments of ________.A) $1,045; $90B) $1,045; $45C) $1,090; $90D) $1,000; $90E) $1,000; $45

When creating pro forma statements, the changes in the liabilities and owners' equity sections depend primarily on the firm'sA) financing policies.B) interest rates and financing policies.C) dividend and financing policies.D) retained earnings policies.E) rate of sales growth.

Which portion of the DuPont identity measures the financial leverage employed by a firm?A) Both the profit margin and the equity multiplierB) Equity multiplierC) Total asset turnoverD) Both the capital intensity ratio and the total asset turnoverE) Both the capital intensity ratio and the debt-equity ratio

A discount bond has a coupon rate thatA) exceeds its current yield.B) is less than the bond's yield to maturity.C) exceeds both its current yield and its yield to maturity.D) equals its current yield.E) equals its current yield provided the bond pays interest annually.

Last year, Theo purchased a fixed-rate, 7-year bond at par that has a coupon rate of 6.5 percent. If the current market rate for this type and quality of bond is 6.8 percent, then he should expectA) his interest payments to increase.B) the bond's yield to maturity to remain constant.C) the current yield today to be less than 6.5 percent.D) the bond's current market price to exceed its face value.E) to realize a capital loss if he sold the bond at today's market price.

Assume a discount bond has a few years until maturity and a positive yield. All else constant, the bond's yield to maturity isA) directly related to the time to maturity.B) equal to the coupon rate.C) inversely related to the bond's market price.D) unrelated to the time to maturity.E) less than its coupon rate.

Interest rate risk ________ as the time to maturity increases.A) increases at an increasing rateB) increases at a decreasing rateC) increases at a constant rateD) decreases at an increasing rateE) decreases at a decreasing rate

Which of the following are generally included in a bond indenture?A) Market price and face valueB) Repayment arrangements and market priceC) Yield to maturity on any given dateD) Security description and basic termsE) Protective covenants and lenders identities

When creating pro forma statements, the external financing need will increase if youA) increase the corporate tax rate.B) decrease the dividend payout ratio.C) increase the plowback ratio.D) decrease the rate of sales growth.E) decrease the projected level of sales.

Firms with high enterprise value multiples are most apt to haveA) high growth opportunities.B) low market-to-book ratios.C) low profit margins.D) low inventory turnover rates.E) a low price-earnings ratio.

If a firm decreases its operating costs, all else constant, thenA) the profit margin increases while the cash coverage ratio decreases.B) the return on assets increases while the return on equity decreases.C) both the return on assets and the return on equity increase.D) both the profit margin and the equity multiplier increase.E) the total asset turnover rate decreases while the profit margin increases.

Which one of these measures a firm's operating and asset use efficiency as well as its financial leverage?A) Equity multiplierB) Capital intensity ratioC) DuPont identityD) Profit marginE) Return on assets

The internal rate of growth is based on the assumption thatA) no dividends are paid.B) no external funding of any type is obtained.C) the return on equity is held constant.D) the only additional outside capital obtained is long-term debt.E) the debt-equity ratio is held constant.