Ch 10 Flashcards
During periods of economic expansion, firms usually rely more on internal sources of funds.
F
Most of the annual funds raised from security issues come from corporate bond sales
T
Long term business funds are obtained by issuing commercial paper and corporate bonds
F
Private placements must be approved by the Securities and Exchange Commission (SEC).
F
Firms issue more bonds than equities.
T
A debt holder may force the firm to abide by the terms of the debt contract even if the result is
reorganization or dissolution of the firm.
T
Bondholders have priority claims over equity holders to a firm’s assets and cash flows
T
Bond covenants are the best way for bondholders to protect themselves against dubious management
actions.
T
Bond issues of a single firm can have different bond ratings if their security provisions differ
T
Mortgage bonds are secured by home mortgages
F
The claims of subordinated debenture bondholders are junior to the claims of debenture holders.
T
A convertible bond can be converted, at the issuing firm’s option, into a specific number of shares of the
issuer’s common stock.
F
Callable bonds can be redeemed prior to maturity by the firm
T
Eurodollar bonds are dollar-denominated bonds that are sold outside the United States.
T
Yankee bonds are U.S. dollar-denominated bonds that are issued in the United States by a foreign issuer
T
Global bonds usually are denominated in U.S. dollars and have offering sizes that typically exceed $1
billion.
T
Preferred stock is an equity security that has a senior claim to the firm’s earnings and assets over bonds.
F
Callable preferred stock gives the corporation the right to retire the preferred stock at its option.
T
The higher the discount rate or yield to maturity, the lower the price of a bond
T
The bond issuer does not necessarily know who is receiving interest payments on bearer bonds.
T
A bond with a coupon rate of 4% and a discount rate of 6% will pay $60 in interest each year
F
A trustee represents the company to ensure that the covenants of the bond indenture are met.
F
The call price of a callable bond is typically equal to par value plus two years interest
F
Zero coupon bonds are not suited for tax-exempt accounts such as IRAs or pension funds
F
Inflation-protected Treasury notes have a principal value that changes in accordance with the consumer price index (CPI).
T
A bond will sell at a discount if its required return or discount rate is greater than its coupon rate
T
A bond will sell at a premium if its required return or discount rate is greater than its coupon rate
F
Credit risk is another term for default risk.
T
Financial assets are claims against the income or assets of individuals, businesses, and governments
T
Real assets are claims against the income or assets of individuals, businesses, and governments.
F
Most bonds currently issued in the United States today are registered bonds
T
Most bonds currently issued in the United States today are bearer bonds
F
Subordinate debentures are bonds whose claims are junior to the claims of those holding debenture bonds
T
Many callable bonds possess a call deferment period which is a specified period of time after the issue
during which the bonds cannot be called.
T
Global bonds are generally denominated in euros and are marketed globally.
F
Common stock possesses the highest claim on the assets and cash flow of the firm
F
Common stock possesses the lowest claim on the assets and cash flow of the firm.
T
The par value of a common stock is an accounting and legal concept that bears little relationship to a firm’s
stock price or book value.
T
The par value of a common stock is meaningful in that it is often used to determine the fixed annual
dividend.
F
The par value of a preferred stock is meaningful in that it may be used to determine the fixed annual
dividend.
T
Convertible preferred stock has a special provision that makes it possible to convert it to common stock of
the corporation, generally at the stockholder’s option
T
Preferred stock pays a dividend that is equal to its par value
F
There is an inverse relation between debt instrument prices and nominal interest rates in the marketplace
T
The shorter the maturity of a fixed-rate debt instrument, the greater the reduction in its value to a given
interest rate increase.
F
The values of stocks and bonds are not affected by time value of money concepts
F
