Chapter 14 MC - CHAPTER FOURTEEN Multiple Choice Questions...

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CHAPTER FOURTEEN Multiple Choice Questions 14-1. An indenture is best described as: a. a bond b. a contract c. a prospectus d. a bond rating 14-2. A legal document that gives the provisions of a bond issue is called: a. an indenture b. a debenture c. a covenant d. a term-loan agreement 14-3. A bond rated Baa would be considered to be: a. speculative b. junk c. investment grade d. in default 14-4. A secured bond would require: a. a plan for paying off the bond at maturity b. no restrictive covenants c. an independent trustee d. a claim on specific assets in the event of default 14-5. A bond with staggered maturities would best be described as: a. a term bond b. a capital appreciation bond c. a serial bond d. a sinking fund bond 14-6. The required periodic payment of principal to ensure payment of the bond by maturity is referred to as: a. an escrow account b. a sinking fund c. a serial bond retirement account d. a call premium 14-7. A medium-grade bond according to Moody’s has a rating of: 166
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a. Baa b. B c. A d. Aaa 14-8. A firm might call an outstanding bond: a. when interest rates rise b. when it needs to raise new funds c. when interest rates fall d. when its cost of capital increases 14-9. The call price will exceed the par value by an amount called: a. the call premium b. the call discount c. the redemption price d. the percentage of price 14-10. Issuing new bonds to replace old bonds is called: a. a refunding operation b. a provisional call c. a serial redemption d. a sinking fund redemption 14-11. With respect to a refunding operation, the primary incremental cash inflow comes from: a. the call premium b. flotation costs c. interest savings d. capital budgeting cash flows 14-12. Restrictive covenants would likely prohibit the issuing firm from doing any of the following except: a. issuing future debt b. paying dividends c. issuing common stock d. increasing current liabilities 167
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14-13. Which of the following is an example of a secured bond: a. debenture b. mortgage bond c. subordinated debenture d. refunded bond 14-14.
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