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Corporate Finance Homework 6

10 Questions
Corporate Finance Homework 6

These are the homework questions for Chapter 6 in Corporate Finance.

Questions and Answers
  • 1. 
    What is the principal amount of a bond that is repaid at the end of the loan term called?
    • A. 

      Coupon

    • B. 

      Market price

    • C. 

      Accrued price

    • D. 

      Dirty price

    • E. 

      Face value

  • 2. 
    The annual interest divided by the face value of a bond is referred to as the:
    • A. 

      Market rate.

    • B. 

      Call rate.

    • C. 

      Coupon rate.

    • D. 

      Current yield.

    • E. 

      Yield-to-maturity.

  • 3. 
    On which one of the following dates is the principal amount of a bond repaid?
    • A. 

      Coupon date

    • B. 

      Issue date

    • C. 

      Discount date

    • D. 

      Maturity date

    • E. 

      Face date

  • 4. 
    Which one of the following terms refers to a bond's rate of return that is required by the market place?
    • A. 

      Coupon rate

    • B. 

      Yield to maturity

    • C. 

      Dirty yield

    • D. 

      Call yield

    • E. 

      Discount rate

  • 5. 
    The written agreement that contains the specific details related to a bond issue is called the bond:
    • A. 

      Indenture.

    • B. 

      Debenture.

    • C. 

      Document.

    • D. 

      Registration statement.

    • E. 

      Issue paper.

  • 6. 
    Miller Farm Products is issuing a 15-year, unsecured bond. Based on this information, you know that this debt can be described as a:
    • A. 

      Note.

    • B. 

      Bearer form bond.

    • C. 

      Debenture.

    • D. 

      Registered form bond.

    • E. 

      Call protected bond.

  • 7. 
    What term is used to describe an account that a bond trustee manages for the sole purpose of redeeming bonds early?
    • A. 

      Registered account

    • B. 

      Bearer account

    • C. 

      Call account

    • D. 

      Sinking fund

    • E. 

      Premium fund

  • 8. 
    A call provision grants the bond issuer the:
    • A. 

      Right to contact each bondholder to determine if he or she would like to extend the term of his or her bonds.

    • B. 

      Option to exchange the bonds for equity securities.

    • C. 

      Right to automatically extend the bond's maturity date.

    • D. 

      Right to repurchase the bonds on the open market prior to maturity.

    • E. 

      Option of repurchasing the bonds prior to maturity at a pre-specified price.

  • 9. 
    A protective covenant:
    • A. 

      Protects the borrower from unscrupulous practices by the lender.

    • B. 

      Is designed to protect the bond dealer from potential legal liability related to the bond issue.

    • C. 

      Prevents a bond from being called.

    • D. 

      Limits the actions of the borrower.

    • E. 

      Guarantees that a bond will be repaid in full with interest.

  • 10. 
    Which one of the following terms applies to a bond that initially sells at a deep discount and pays no interest payments?
    • A. 

      Callable

    • B. 

      Income

    • C. 

      Zero coupon

    • D. 

      Convertible

    • E. 

      Tax-free