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See page 26 18 4 18 incorrect bills of exchange are

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Unformatted text preview: eedback: Promissory notes are short-term, money market securities, which differ from bills in that they are unsecured. See page 26. 18 4 18 INCORRECT Bills of exchange are discount securities. An important feature of discount securities is: A) the term to maturity is long B) the issue price is usually greater than face value C) the holder receives regular interest payments from the issuer D) holders obtain their return on Feedback: Discount securities are issued at lessinvestment value and redeemed at face value. Thus,pay for the than face from the difference between the price they they do not security and the the at which it is sold involve interest payments and, whileprice term to maturity is often short, there are also longer term zero-coupon bonds with the same cash flow pattern. Therefore, A, B and C are all incorrect and D is the correct answer. See page 26. 19 4 19 INCORRECT XYZ Enterprises Limited needs to raise additional funding to expand its manufacturing operations. Management decidesmarket $10 million in corporate bonds over the next three months. These securities A) wholesale to issue will be issued in the: market B) secondary Feedback: A new issue is a primary rather than secondary market transaction and since bonds are long-term C) money market s ecurities they are traded in the capital market rather than the money market. An issue of $10 million in one D) capital market parcel would be regarded as a ‘wholesale’ transaction but the information provided leaves open the possibility that the bonds will be issued in smaller, ‘retail’ parcels. In summary, B, C and A are all incorrect, but D is correct. See page 26. 20 4 20 INCORRECT The essential characteristic of equity is: A) ordinary shares are issued only by public companies B) equity provides both short- and long-term funding C) the equity investor obtains an ownership interest Feedback: The most common form of equity is the ordinary share, which provides holders with an ownership D) equity finance can be raised only by companies are shares by private and exchange interest in the issuing company, so C is correct. Ord...
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