Fixed Income Securities: Characteristics And Valuation

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Questions Bank

The Role and Objective of Financial Management
The Domestic and International Financial Marketplace
Evaluation of Financial Performance
Financial Planning and Forecasting
The Time Value of Money
Fixed Income Securities: Characteristics and Valuation
Common Stock: Characteristics, Valuation, and Issuance
Analysis of Risk and Return
Capital Budgeting and Cash Flow Analysis
Capital Budgeting: Decision Criteria and Real Option Considerations
Capital Budgeting and Risk
The Cost of Capital
Capital Structure Concepts
Capital Structure Management in Practice
Dividend Policy
Working Capital Policy and Short-term Financing
The Management of Cash and Marketable Securities
Management of Accounts Receivable and Inventories
Lease and Intermediate-term Financing
Financing With Derivatives
Risk Management
International Financial Management
Corporate Restructuring
Appendix: Continuous Compounding and Discounting
Appendix: Mutually Exclusive Investments Having Unequal Lives
Appendix: Breakeven Analysis
Appendix: Bond Refunding Analysis
Appendix: Taxes

All Questions

Question 1

Free

Multiple Choice

Which of the following types of debt securities protect investors against interest rate risk?

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floating rate bonds

extendible notes

original issue deep discount bonds

floating rate bonds and extendible notes

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Question 2

Free

Multiple Choice

Zero coupon bonds are an example of

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original issue deep discount bonds

extendible notes

convertible bonds

floating rate notes

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Question 3

Free

Multiple Choice

Original issue deep discount bonds have decreased in popularity over the last several years due to:

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changes in tax laws

issuance by brokerage firms of lower risk substitutes

increased interest in equity securities

changes in tax laws and issuance by brokerage firms of lower risk substitutes

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Question 4

Free

Multiple Choice

Extendable notes are redeemable at par at the option of the

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holder

company

trustee

holder and trustee

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Question 5

Free

Multiple Choice

If a firm could sell a mortgage bond at an 8% interest rate, it could sell an otherwise identical debenture at

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a rate less than 8%

a rate greater than 8%

cannot be determined

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Question 6

Multiple Choice

When the market for an asset is in equilibrium, the expected rate of return on the asset is equal to the:

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risk-free rate

marginal investor's required rate of return

historical cost of capital

perpetual capitalization rate

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Question 7

Multiple Choice

The the investor's required rate of return on a bond, the will be the value of the bond to the investor.

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lower, higher

higher, higher

lower, lower

higher, lower

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Question 8

Multiple Choice

The value of a perpetual bond is equal to the annual interest payment divided by the:

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risk-free rate

required rate of return

bank interest rate

after-tax historical cost of capital

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Question 9

Multiple Choice

The yield-to-maturity of a bond with a finite maturity date is a function of all of the following variables except:

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the current price

the required rate of return on the bond

the uniform annual interest payments

the maturity value

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Question 10

Multiple Choice

Which of the following statements concerning preferred stocks is true?

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Preferred stockholders have a prior claim on the income and assets of the firm as compared to the claims of lenders.

Preferred stock dividends per share are normally increased as the earnings of the firm increase.

Preferred dividends per share are usually not cut or suspended unless the firm is faced with serious financial problems.

The par value of a stock is always the same as the initial selling price.

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Question 11

Multiple Choice

Rank in ascending order (lowest to highest) the relative risk associated with holding the preferred stock, common stock and bonds of a firm:

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preferred stock, bonds, common stock

bonds, common stock, preferred stock

common stock, preferred stock, bonds

bonds, preferred stock, common stock

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Question 12

Multiple Choice

Potential sellers of an asset can be represented as a schedule showing the prices at which they are willing to sell given quantities of the asset.

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supply, maximum

demand, maximum

supply, minimum

supply, average

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Question 13

Multiple Choice

By the capitalization-of-cash flows method, the value of an asset is a function of

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the book value of the asset

the risk of the asset's cash flows

the age of the asset

both the book value and the age of the asset

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Question 14

Multiple Choice

Which of the following is not a characteristic of long- term debt?

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interest paid to bond holders is a tax-deductible expense to the firm

firm is not legally required to pay interest to bond-holders

usually has a specific maturity

all of the above are characteristics of long-term debt

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Question 15

Multiple Choice

The quality of a debenture depends on the

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general credit-worthiness of the issuing company

value of the assets used as collateral

the coupon rate of the debenture

length of time to maturity

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Question 16

Multiple Choice

The indenture is a contract between the issuer and lenders that does all the following except:

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specifies the manner in which the principal must be repaid

details the nature of the debt issue

gives management's expectations about return of the proceeds

lists any restrictive covenants

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Question 17

Multiple Choice

The call feature of a long-term bond

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is an optional retirement provision

states the call price

allows the issuer to replace a high coupon bond with one with a lower coupon bond

all the above are correct

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Question 18

Multiple Choice

A sinking fund allows the issuer to

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redeem an entire debt issue prior to maturity

purchase a portion of the debt each year in the open market or call a portion of the debt for mandatory redemption

call the entire debt issue

accumulate interest expenses into a sinking fund account

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Question 19

Multiple Choice

Normally the coupon rates on new bonds

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do not change over the life of the issue

are set equal to the market rate plus an inflation premium

float with changes in the prime rate

are set just over the prevailing prime rate

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Question 20

Multiple Choice

Junk bonds are

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usually rated Ba or higher

are issued by firms with a high debt ratio

issued with coupon rates at least 8 percentage points or more above the highest quality issues

are issued by firms with a low debt ratio

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Fixed Income Securities: Characteristics And Valuation

Which of the following types of debt securities protect investors against interest rate risk?

Zero coupon bonds are an example of

Original issue deep discount bonds have decreased in popularity over the last several years due to:

Extendable notes are redeemable at par at the option of the

If a firm could sell a mortgage bond at an 8% interest rate, it could sell an otherwise identical debenture at

When the market for an asset is in equilibrium, the expected rate of return on the asset is equal to the:

The ____ the investor's required rate of return on a bond, the ____ will be the value of the bond to the investor.

The value of a perpetual bond is equal to the annual interest payment divided by the:

The yield-to-maturity of a bond with a finite maturity date is a function of all of the following variables except:

Which of the following statements concerning preferred stocks is true?

Rank in ascending order (lowest to highest) the relative risk associated with holding the preferred stock, common stock and bonds of a firm:

Potential sellers of an asset can be represented as a ____ schedule showing the ____ prices at which they are willing to sell given quantities of the asset.

By the capitalization-of-cash flows method, the value of an asset is a function of

Which of the following is not a characteristic of long- term debt?

The quality of a debenture depends on the

The indenture is a contract between the issuer and lenders that does all the following except:

The call feature of a long-term bond

A sinking fund allows the issuer to

Normally the coupon rates on new bonds

Junk bonds are

The the investor's required rate of return on a bond, the will be the value of the bond to the investor.

Potential sellers of an asset can be represented as a schedule showing the prices at which they are willing to sell given quantities of the asset.