Long Term Liabilities

Question 0

Firm underwriting

Answer 0

Investment banks underwrite entire issue of bond by
guaranteeing certain sum to company

Taking risk of selling bonds for whatever price they can get

Question 1

What happens to the value of a bond during a leveraged buyout? Why?

Answer 1

They lose value

Loss in value occurs because additional debt added in
capital structure increases likelihood of default

Question 2

Best efforts underwriting

Answer 2

Investment bank sells bond issue for commission on

Proceeds of sale

Question 3

Private placement

Answer 3

Issuing company sells bonds directly to large institution,

Financial or otherwise without aid of underwriting

Question 4

Secured bonds

Answer 4

Backed by pledge of some sort of collateral

Question 5

Mortgage bonds

Answer 5

Secured by claim on real estate

Question 6

Collateral trust bonds

Answer 6

Secured by stocks and bonds of other corporations

Question 7

Unsecured bonds

Answer 7

Bonds not backed by collateral

Question 8

Junk bond, define? what do companies use these bonds for?

Answer 8

Unsecured and very risky, paying high interest rate

Used to finance leveraged buyouts

Question 9

Term bonds

Answer 9

Bond issues that mature on single date

Question 10

Serial bonds

Answer 10

Mature in installments

Question 11

Serially maturing bonds are frequently used by… 4 things

Answer 11

School or sanitary districts, municipalities or other local

Taxing bodies that receive money through special levy

Question 12

Callable bonds

Answer 12

Give issuer right to call and redeem bonds prior to maturity

Question 13

Convertible bonds

Answer 13

Bonds are convertible into other securities of corporation

For specified time after issuance

Question 14

What 2 types of bonds have been developed in attempt to attract capital in a tight money market?

Answer 14

1 commodity backed bonds

2 deep discount bonds

Question 15

Commodity backed bonds AKA asset-linked bonds

Answer 15

Redeemable in measures of commodity such as barrels of
Oil, tons of coal, ounces of rare metal

Ex. Sunshine mining sold 2 issues of bonds redeemable with either $1000 cash or 50 ounces of silver, whichever is
Greater at maturity, stated interest rate 8.5%

Question 16

Deep discount bonds AKA zero interest debenture

Answer 16

Sold at discount provides buyers with total interest payoff

At maturity

Question 17

Registered bonds define, what 2 things do they require?

Answer 17

Bonds issued in name of owner

Require surrender of certificate and issuance of new
Certificate to complete sale

Question 18

Bearer AKA coupon bond

Answer 18

Not recorded in name of owner

May be transferred from one owner to another by delivery

Question 19

Income bonds

Answer 19

Pay no interest unless issuing company is profitable

Question 20

Revenue bonds

Answer 20

Interest is paid from specific revenue sources

Ex. Issued by airports, school districts, counties, toll road authorities and government bodies