Deck 23: Corporate Senior Instruments Markets: II

Question 1

Preferred stock is classified as a senior instrument in that holders of these securities:

A) Have priority over debtholders in the case of liquidation.
B) Have priority over common stockholders in the case of bankruptcy.
C) Have first claim to the earnings and assets of the firm.
D) Have no risk.
E) None of the above.

Answer 1

Have priority over common stockholders in the case of bankruptcy.

Question 2

The largest group of investors in corporate bonds is:

A) Life insurance companies.
B) Pension funds.
C) Foreign investors.
D) Depository institutions.
E) Mutual funds.

Answer 2

Life insurance companies.

Question 3

The promises of corporate bond issuers and the rights of investors who buy them are set forth in great detail in the:

A) Bond coupon.
B) Bond indenture.
C) Corporate charter.
D) Fiduciary.
E) None of the above.

Answer 3

Bond indenture.

Question 4

The important aspects outlined in a bond indenture include the bond's:

A) Maturity.
B) Security.
C) Provisions for retirement.
D) a and b only.
E) All of the above.

Question 5

Most corporate bonds are:

A) Term bonds.
B) Bullet bonds.
C) Serial bonds.
D) a and b only.
E) All of the above.

Question 6

Corporate bond issues that are arranged so that specified principal amounts become due on specified dates prior to maturity are called:

A) Bullet-maturity bonds.
B) Serial bonds.
C) Term bonds.
D) Notes.
E) None of the above.

Question 7

Bonds secured by real property or personal property are called:

A) Mortgage bonds.
B) Debentures.
C) Subordinated bonds.
D) Collateral trust bonds.
E) None of the above.

Question 8

An obligation guaranteed by another entity is called a:

A) Collateral trust bond.
B) Subordinated debenture bond.
C) Guaranteed bond.
D) Equipment trust certificate.
E) None of the above.

Question 9

Which of the following allows for paying off bonds prior to maturity?

A) Conversion feature.
B) Sinking fund.
C) Call provision.
D) Retirement feature.
E) All of the above.

Question 10

As a general rule, bonds are callable at:

A) Maturity only.
B) A premium above par.
C) The coupon rate.
D) The yield-to-maturity.
E) None of the above.

Question 11

If the issuer of a bond has the choice to retire all or part of an issue prior to maturity, the bondholder is exposed to:

A) Call risk.
B) Timing risk.
C) Refunding risk.
D) a and b only.
E) All of the above.

Question 12

The provision in a bond indenture that may require the issuer to retire a specified portion of an issue each year is the:

A) Call provision.
B) Sinking fund provision.
C) Refunding provision.
D) Warrant.
E) None of the above.

Question 13

The bondholder is given the right to sell the issue back to the issuer at the par value on designated dates in a:

A) Convertible bond.
B) Exchangeable bond.
C) Putable bond.
D) Warrant.
E) None of the above.

Question 14

Medium-term notes are:

A) Corporate debt obligations that are offered continuously to investors.
B) Sold with securities from 9 months to 30 years.
C) Not registered with the SEC.
D) a and b only.
E) All of the above.

Question 15

Corporate bond issuers use the proceeds from a bond sale for:

A) Working capital.
B) Expansion of facilities.
C) Refinancing of outstanding debt.
D) Financing takeovers.
E) All of the above.

Question 16

Deferred-interest bonds:

A) Sell at a deep discount.
B) Do not pay interest for an initial period.
C) Are sometimes referred to as zero-coupon bonds.
D) a and b only.
E) All of the above.

Question 17

In contrast to corporate debt, medium-term notes (MTNs) are:

A) Distributed to investors on a best efforts basis.
B) Are sold in large offerings.
C) Are sold on an intermittent basis.
D) a and c only.
E) All of the above.

Question 18

MTNs created when the issuer simultaneously transacts in the derivative markets are called:

A) Structured notes.
B) Floating-rate securities.
C) Swaps.
D) a and b only.
E) None of the above.

Question 19

A type of preferred stock in which the dividend payment accrues until it is fully paid is called:

A) Perpetual preferred stock.
B) Cumulative preferred stock.
C) Convertible preferred stock.
D) Noncumulative preferred stock.
E) None of the above.

Question 20

Corporations receive what federal tax exemption on qualified dividends of preferred
Stock?

A) 0%.
B) 30%.
C) 50%.
D) 70%.
E) None of the above.

Question 21

A subordinated debenture bond has priority over senior corporate bonds.

Question 22

Medium-term notes (MTNs) are registered with the SEC under the shelf registration rule.

Question 23

Preferred stock as a class of stock has characteristics of both common stock and debt.

Question 24

Collateral trust bonds pledge real property or personal property to offer security beyond that of the general credit standing of the issuer.

Question 25

A debenture bond is an obligation guaranteed by another entity.

Question 26

A convertible bond is a corporate bond with a call option to buy the common stock of the issuer.

Question 27

Interdealer systems, also called client-to-dealer systems, typically display to customers the best bid or offer price of those posted by all dealers.

Question 28

The coupon rate of an MTN with an inverse floating-rate would increase if the benchmark interest rate increases.

Question 29

In the Treasury market, the U.S. government does not issue zero-coupon bonds.

Question 30

Discuss electronic bond trading.