FIN Test II and Suggested Solutions

FIN Test II and Suggested Solutions - Hang Seng Management...

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Hang Seng Management College BBA Programme Semester 1 2010-2011 Test 2 Module Code : FIN 3002 Module Title : Introduction to Financial Management Date : November 24, 2010 Time Allowed : 1.5 Hours (9:10 a.m. – 10:40 a.m.) Notes to Candidate: 1. This question paper has 7 pages (excluding this cover sheet). 2. This question paper has 2 sections. Section 1 has 35 MCQ and each question carries 2 points. Section 2 has 5 structural questions and each carries 6 points. 3. You may bring a piece of A4 paper to the test venue. Apart from this piece of paper, no other reference materials can be used. 4. You can use a calculator. There is no requirement on the model of calculator. 5. For the MCQ, you have the option to explain your work. In case you do not get the correct choice but have a point in your answer, partial credit will be given. 6. For the Structural Questions, beware to show your work. Providing answers alone will not get you full credit. Student Name Student ID No. Class Group Do not turn over this page until you are told to do so. You should hand in this question paper after the test.
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1 Section 1: Multiple Choice Questions (70%, 35 MCQ 2% each)
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2 1. The yield to maturity on a bond is: A. equal to the coupon rate divided by the current market price. B. another name for the current yield. C. the current required market rate. D. equal to the annual interest divided by the face value. E. another name for the coupon rate.
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3 2. The written agreement between a corporation and its lender that spells out the terms of a bond issue is called the: A. indenture. B. debenture. C. private placement agreement. D. registration statement. E. issue paper. 3. A debenture is: A. long-term debt secured by fixed assets of the borrower. B. long-term debt secured by real estate. C. unsecured debt that generally matures in ten years or more. D. unsecured debt that generally matures in less than ten years. E. any type of debt that is short-term in nature. 4. A sinking fund is an account managed by a bond trustee for the sole purpose of: A. paying interest payments on a semi-annual basis. B. redeeming bonds early. C. repaying the face value at maturity. D. paying the expenses required to reissue outstanding bonds. E. paying the "balloon payment" at maturity. 5. A call provision in a bond agreement grants the issuer the right to: A. call the bondholder to determine if he or she would like to extend the term of the bond agreement. B. replace the bonds with equity securities. C. change the coupon rate provided the bondholders are notified in advance. D. buy back the bonds on the open market prior to maturity. E. repurchase the bonds prior to maturity at a pre-specified price. 6. A bond that pays no interest payments and sells at a deep discount is called a(n) _____ bond. A. callable
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FIN Test II and Suggested Solutions - Hang Seng Management...

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