Question 1

BC Brewery issues $50 million in straight bonds at an original issue discount of 1% and a coupon rate of 7.5%.The firm also pays underwriting fees of 3.5% on the face value of the bonds.What are the net proceeds to BC Brewery from the bond issue?

Accepted Answer

C) Amount received after discount = 50 × (1 - 0.01) = $49.5 million.
Amount paid in fees = 50 × 0.035 = $1.75 million.
Net proceeds = $47.75 million

Question 2

Alberta Energy issues $85 million in straight bonds at par with a coupon rate of 6.5%.The firm also pays underwriting fees of 3.5% on the face value of the bonds.What are the net proceeds to Alberta Energy from the bond issue?

Accepted Answer

E) 85 × (1 - 0.035) = $82 million

Question 3

Bonds issued by a foreign company in a local market,intended for local investors,and denominated in the local currency are known as

Accepted Answer

Foreign bonds are issued by a foreign company in a local market, intended for local investors, and are denominated in the local currency. This distinguishes them from other types of bonds like Eurobonds or Yankee bonds, which are issued in foreign markets or in foreign currencies.

Question 4

Kruller A.G.issues a bond that is offered for sale simultaneously in Europe,the United States,and Japan.Which of the following best describes this bond?

Accepted Answer

This is a global bond because it is being offered for sale in multiple countries, including Europe, the United States, and Japan. A domestic bond would only be offered in one country, a foreign bond would be issued by a foreign entity in a single country, and a Eurobond would only be offered in Europe. A corporate bond simply refers to a bond issued by a corporation, which is not specific enough to describe the geographic scope of the bond offering.

Question 5

Which of the following statements is most accurate?

Accepted Answer

The term "subordinated" implies that the debt has a lower priority than the company's outstanding debt, and this lower priority is typically reflected in a higher interest rate.

Question 6

What is the difference between secured and unsecured debt?

Accepted Answer

The answer of What is the difference between secured and...

Question 7

Alberta Energy issues $110 million in straight bonds at par with a coupon rate of 8%.The firm also pays underwriting fees of 1.5% on the face value of the bonds.What are the net proceeds to Alberta Energy from the bond issue?

Accepted Answer

C) 110 × (1 - 0.015) = $108.35 million

Question 8

BC Brewery issues $30 million in straight bonds at an original issue discount of 2% and a coupon rate of 6%.The firm also pays underwriting fees of 2.5% on the face value of the bonds.What are the net proceeds to BC Brewery from the bond issue?

Accepted Answer

E) Amount received after discount = 30 × (1 - 0.02) = $29.4 million.
Amount paid in fees = 30 × 0.025 = $0.75 million.
Net proceeds = $28.65 million

Question 9

What kind of unsecured corporate debt has a maturity of greater than ten years?

Accepted Answer

Debentures are unsecured corporate debt with a maturity of greater than ten years. Mortgage bonds are secured by real estate, asset-back bonds are secured by specific assets, term loans are bank loans with a fixed term, and notes are short-term debt with a maturity of usually less than ten years.

Question 10

Which of the following statements regarding bonds is most accurate?

Accepted Answer

Global bonds are offered for sale in several different markets simultaneously, combining the features of domestic, foreign, and Eurobonds. A is incorrect because foreign bonds are issued by a foreign entity and traded in a local market. B is incorrect because domestic bonds are issued by a local company in a local market for local investors. C is incorrect because debentures are a type of unsecured corporate debt. D is incorrect because Eurobonds are issued in a currency other than the local currency of the country in which they are issued.

Question 11

Tompkinson's PLC,a British company,issues a bond in Canadian dollars in Canada,intended for Canadian investors.Which of the following best describes this bond?

Accepted Answer

This bond is a Maple bond, which is a type of bond issued by non-Canadian companies in Canadian dollars, specifically intended for Canadian investors.

Question 12

Which of the following best describes an international bond that is not denominated in the local currency of the country in which it is issued?

Accepted Answer

A bond issued internationally, but not denominated in the local currency of the country in which it is issued, is referred to as a Eurobond. Foreign bonds are issued by a foreign entity in a domestic market and domestic bonds are issued by a domestic entity in the domestic market. Global bonds are bonds that are issued simultaneously in multiple countries and currencies. Corporate bonds are bonds issued by corporations.

Question 13

BC Brewery issues $120 million in straight bonds at an original issue discount of 1.5% and a coupon rate of 5%.The firm also pays underwriting fees of 3% on the face value of the bonds.What are the net proceeds to BC Brewery from the bond issue?

Accepted Answer

A) Amount received after discount = 120 × (1 - 0.015) = $118.2 million.
Amount paid in fees = 120 × 0.03 = $3.6 million.
Net proceeds = $114.6 million

Question 14

Explain the difference between notes and debentures.

Accepted Answer

The answer of Explain the difference between notes and debentures....

Question 15

What is bond seniority?

Accepted Answer

The answer of What is bond seniority?...

Question 16

What kind of corporate debt has a maturity of less than ten years?

Accepted Answer

Notes typically have a maturity of less than ten years, making them the best choice for this question. Asset-backed bonds, debentures, mortgage bonds, and unsecured debt may have longer maturities.

Question 17

What kind of corporate debt must be secured by real property?

Accepted Answer

Mortgage bonds are secured by real property, while notes, asset-backed bonds, debentures, and unsecured debt are not necessarily secured by real property.

Question 18

What kind of corporate debt can be secured by any specified assets?

Accepted Answer

Asset-backed bonds are specifically designed to be secured by certain assets, such as accounts receivable, inventory, or property. This means that if the company defaults on the bond, the investors have a claim to those assets to recoup their investment. The other options listed may or may not be secured by specific assets, depending on the terms of the agreement.

Question 19

Alberta Energy issues $150 million in straight bonds at par with a coupon rate of 6%.The firm also pays underwriting fees of 2% on the face value of the bonds.What are the net proceeds to Alberta Energy from the bond issue?

Accepted Answer

B) 150 × (1 - 0.02) = $147 million

Question 20

Which of the following best describes a bond that is issued by a local entity and traded in a local market,but that may be purchased by foreigners?

Accepted Answer

A domestic bond is issued by a local entity and traded in a local market, but it can still be purchased by foreigners. This is in contrast to a foreign bond, which is issued by a foreign entity and may only be purchased by investors outside of that country. A Eurobond is a bond denominated in a currency other than the currency of the country where it is issued and is typically sold outside of the issuer's country. A global bond is similar to a Eurobond but is also sold in the issuer's home country. Corporate bonds are issued by corporations to raise money and can be domestic or foreign.

Quiz 15: Debt Financing