Chapter 24 problems and Solutions (1)

Chapter 24 problems and Solutions (1) - Math 3650 Chapter...

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Math 3650 Chapter 24 Problems and Solutions 1. What is an indenture? 2. What is an original issue discount bond (OID)? 3. What are two types of unsecured corporate debt? What does this mean? 4. What are mortgage bonds? 5. What are asset-backed bonds? 6. What is meant by the seniority of unsecured debentures? What is a subordinated debenture? 7. What are the two types of private debt incurred by corporations? 8. What are the advantages and disadvantages of private debt as compared to public debt? 9. What is the advantage of issuing private debt under the rules of SEC Rule 144A?
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10. What is the key difference between Treasury notes and Treasury bonds? 11. What are Treasury STRIPS? 12. What are bond covenants? 13. What is a callable bond? 14. Which will have the higher yield – a callable bond or an otherwise equivalent non- callable bond? Why? 15. If interest rates are high relative to the coupon of a callable bond, what non-callable bond will its price be similar to? 16. If interest rates are low relative to the coupon of a callable bond, what non-callable bond will its price be similar to? 17. How do you calculate yield to maturity on a callable bond? 18. What is the yield to call? 19. What is a puttable bond?
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Answers 1. An indenture is a required part of the prospectus for all public debt offerings of a corporation. An indenture is a formal contract between the bond issuer and a trust company. The coupon rate, maturity date, and par value are all part of the indenture.
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