Question 1

Which bonds are backed by specific assets of the company,which are pledged as collateral?

Accepted Answer

Secured bonds are backed by specific assets of the company, which are pledged as collateral. Debenture bonds are unsecured bonds, while holding bonds and conventional bonds are not specific types of bonds.

Question 2

Some corporations pay their shareholders in the form of more shares.Which of the following best describes this type of payment?

Accepted Answer

When a corporation pays their shareholders in the form of more shares, it is known as a stock dividend. This means that current shareholders receive additional shares of stock in proportion to the number of shares they currently own. A stock dividend is typically seen as an indication that the company is doing well financially and is reinvesting its profits back into the company.

Question 3

Alli Kamal loaned Textron Corporation $1,000 in the form of a bond purchase.Textron must pay back the $1,000 on August 1,2015.The $1,000 is known as which of the following?

Accepted Answer

The $1,000 is known as the principal, which is the original amount of the loan or investment that must be repaid at maturity.

Question 4

Michaela Petty owns common shares in Procter & Gamble.Last quarter she received a cheque from P&G for $132,which is her share of P&G's distributed profits.Petty has received which of the following?

Accepted Answer

Petty received a cheque from P&G for her share of its distributed profits. This share of profits is called a dividend, which makes (C) the correct choice. Interest is a payment made on a loan, a yield is the income generated by an investment, and a capital gain is the profit earned from selling an asset for more than its purchase price. None of these apply in this scenario.

Question 5

Which type of bonds is an example of a secured bond?

Accepted Answer

Mortgage bonds are secured by a specific asset, such as real estate, which serves as collateral for the bond. This makes them less risky for investors as they have a tangible asset backing the bond. Premium bonds are a type of savings bond issued by the government that offer higher interest rates, debenture bonds are unsecured bonds that rely on the issuer's creditworthiness, and indenture bonds are simply bonds that come with an indenture agreement outlining the terms and conditions of the bond issuance.

Question 6

According to your text,which type of bonds was issued by FedEx?

Accepted Answer

FedEx issued debenture bonds, which are a type of unsecured bond that relies on the creditworthiness and reputation of the issuer rather than collateral.

Question 7

Tameika Wilson owns 100 shares of Telus Mobility.Last year Telus Mobility sent her four more shares instead of her usual cash dividend.Which of the following did Telus distribute to its shareholders?

Accepted Answer

Telus Mobility distributed a stock dividend, which means they issued additional shares of stock to their shareholders instead of paying out cash dividends.

Question 8

Which of the following is a class of ownership interest that receives dividends first but does not have the right to vote?

Accepted Answer

Preferred shares are a class of ownership interest that receives dividends first, before other classes of shares, but they do not have the right to vote.

Question 9

The class of equity securities that provides the most potential for growth and appreciation is known as which of the following?

Accepted Answer

Common shares are considered the class of equity securities that provides the most potential for growth and appreciation. This is because common shareholders have voting rights and a stake in the company's profits, and can benefit from increases in the company's stock price. Preferred shares, while offering fixed dividends, generally do not offer the same potential for growth as common shares. Convertible preferred shares and bonds are not equity securities and do not offer voting rights or direct ownership in the company, and therefore do not typically offer the same potential for growth as common shares.

Question 10

Which of the following are long-term debt obligations of corporations?

Accepted Answer

Bonds are long-term debt obligations issued by corporations. A and D are not debt obligations, and B is not a commonly used term in finance.

Question 11

Dayton Manufacturing Company recently issued a bond to finance a new manufacturing plant in Brampton,Ontario.The land on which the plant will be built has been pledged as collateral.Which bonds has the company issued?

Accepted Answer

Mortgage bonds are secured by a pledge of specific assets, such as property or equipment, as collateral. In this case, the land on which the plant is being built has been pledged as collateral for the bond, making it a mortgage bond. Indenture bonds are simply bonds that are issued under an indenture agreement, while debenture bonds are unsecured bonds that are backed only by the issuer's creditworthiness. Revenue bonds are issued to finance specific revenue-generating projects, such as a toll road or a public building. None of these other options seem to fit the scenario described.

Question 12

When the government of Canada issues money on a short-term basis,it issues which of the following?

Accepted Answer

When the government of Canada issues money on a short-term basis, it issues Treasury bills (T-bills). T-bills are short-term debt securities issued by the government of Canada to finance its short-term funding requirements. They are typically issued for a period of less than one year and are sold at a discount to face value. At maturity, the government pays the face value to the holder of the T-bill.

Question 13

Which type of bonds is an example of an unsecured bond?

Accepted Answer

Debenture bond is an example of an unsecured bond. Unsecured bonds are not secured by any collateral or assets and are based only on the issuer's creditworthiness. Alternatively, discount, premium, and indenture bonds are all types of bonds that may be secured by collateral.

Question 14

The interest rate specified on the bond that the company must pay the bondholder is known as which of the following?

Accepted Answer

The interest rate specified on a bond that the company must pay to the bondholder is known as the coupon rate. This is the fixed rate of interest that the bondholder will receive annually or semi-annually until the bond matures. The premium rate refers to a price that is higher than the face value of the bond, while the discount rate is the interest rate used to determine the present value of future cash flows. The dividend is a payment made to the shareholders of a company.

Question 15

Alli Kamal purchased a $1,000 bond from Textron,which Textron must pay back on August 1,2015.That date is known as which of the following?

Accepted Answer

The maturity date is the date when the issuer of a bond must pay back the principal amount to the holder of the bond. In this case, Textron owes Alli Kamal the $1,000 principal amount on August 1, 2015, which is the maturity date. The indenture date is the date when the bond's terms and conditions are established, the debenture date refers to a specific type of bond, and the date of issue is simply the date when the bond was initially sold to investors. None of these other options accurately describe the August 1, 2015 payment deadline.

Question 16

Fleur Ott owns 100 shares of Armstrong Tool Company cumulative preferred shares.The dividend is $6 per share.Armstrong's board of directors omitted the preferred dividends in 2000,2001,and 2002.In 2003,the dividend was resumed.Which of the following represents the amount that Armstrong Tool owes Ott?

Accepted Answer

The answer of Fleur Ott owns 100 shares of Armstrong...

Question 17

When a corporation issues a bond that can be exchanged for common shares at a later date,the company has issued which type of bonds?

Accepted Answer

Convertible bonds can be exchanged for a predetermined number of common shares at a later date. This option provides the bondholder with the potential to benefit from an increase in the company's stock price while still receiving interest payments in the interim.

Question 18

Holders of preferred shares enjoy which of the following advantages?

Accepted Answer

Holders of preferred shares receive a fixed dividend, which is a primary advantage of holding this type of security. They do not have the ability to vote, elect the board of directors, or receive dividends before bondholders.

Question 19

Which of the following represent profits from the operation of the corporation that are distributed to the shareholders?

Accepted Answer

Dividends represent profits from the operation of the corporation that are distributed to the shareholders. Contribution margins are the difference between the selling price of a product and the variable costs associated with producing it. Net profits are the difference between total revenues and total expenses, not necessarily distributed to shareholders. Shared earnings is not a commonly used term in finance and does not accurately represent profits distributed to shareholders.

Question 20

Which of the following type of bonds are high-risk,high-return bonds that were often used to finance mergers and acquisitions in the 1980s?

Accepted Answer

Junk bonds are high-risk, high-return bonds that were often used to finance mergers and acquisitions in the 1980s. Takeover bonds and venture capital bonds are not commonly used terms in finance, and discount bonds are not necessarily high-risk or used specifically for mergers and acquisitions.

Quiz 17: Understanding Money and the Canadian Financial System