2.10.1. Income Bonds

Question 1

What are Income bonds?

Answer 1

They are long-term security in which the principal is usually secured by a mortgage.

Question 2

Are coupon payments guaranteed?

Answer 2

No

Question 3

What are the coupon payments contingent upon?

Answer 3

The company’s ability to pay

Question 4

Which companies issue income bonds?

Answer 4

Issued by financially weak companies to avoid bankruptcy

Question 5

Typically, companies offer income bonds to _______ prior to going into default, in exchange for the company’s _______

Answer 5

existing creditors, outstanding debentures

Question 6

Why are the income bonds offered to existing creditors in exchange for outstanding debentures?

Answer 6

To make its capitalization more flexible and reduce its fixed charges,

Question 7

Why are income bonds seldom accepted y investors out of choice?

Answer 7

Faced with an insolvent company a bondholder may not have a better option than to accept an income bond than lose his investment

Question 8

Income bonds may allow for the accrual of _______.

Answer 8

Missed interest payments

Question 9

Sometimes income bondholders are offered some______ of common shareholders.

Answer 9

Voting rights

Question 10

Income bonds may be ____ by the company at ___

Answer 10

callable, par