Question 1

When the market price of a bond is above its par value,it sells at a premium; if it's below its par value,it is selling at a discount.

Accepted Answer

This statement is true. Bonds typically have a par value, which represents the face value of the bond when it is issued. If the market price of the bond is above its par value, it is said to be selling at a premium. Conversely, if the market price of the bond is below its par value, it is selling at a discount.

Question 2

The par value of a bond is the value of that bond at its maturity.It represents what the firm must pay the bondholder when the bond matures.

Accepted Answer

This statement is true. The par value, also known as the face value or principal, is the amount that the bond issuer promises to repay the bondholder at the maturity date.

Question 3

A convertible bond is a bond that gives its holder the right to exchange it for a stated number of shares of common stock at some specified time period.

Accepted Answer

This statement accurately describes a convertible bond.

Question 4

A coupon rate is the penalty the issuing company must pay to bondholders when it redeems bonds before their maturity date.

Accepted Answer

A coupon rate is the interest rate that the issuing company pays to bondholders on a regular basis until the bond matures. The penalty for redeeming bonds before their maturity date is called a call premium or redemption premium, which is typically a percentage of the bond's face value.

Question 5

Three key types of securities issued by corporations to meet their long-term financial needs are common stock,preferred stock,and bonds.

Accepted Answer

This statement is true.

Question 6

A bond's maturity date is the date when a bond will come due and the issuing company must pay the principal amount owed to the bondholder.

Accepted Answer

The maturity date is the date when the bond comes due and the issuing company must pay the principal amount owed to the bondholder.

Question 7

Preferred shareholders are guaranteed to receive a dividend every quarter.

Accepted Answer

While preferred shareholders are entitled to a fixed dividend payment, the payment is not guaranteed and can be reduced or suspended if the company experiences financial difficulties.

Question 8

A debenture is a bond that is backed by a pledge of a specific asset,such as property or equipment.

Accepted Answer

A debenture is a type of bond that is not secured by physical assets or collateral, relying instead on the creditworthiness and reputation of the issuer.

Question 9

Common stock is the basic form of ownership in a corporation.

Accepted Answer

Common stock represents the ownership interest in a company and gives shareholders voting rights and a share in the company's profits.

Question 10

A bond is a long-term debt instrument issued by a corporation or government entity.

Accepted Answer

A bond is a long-term debt instrument issued by a corporation or government entity.

Question 11

A callable bond allows the person holding the bond to redeem it before its maturity date for the par value.

Accepted Answer

A callable bond allows the issuer, not the holder, to redeem the bond before its maturity date, usually at a premium to the par value.

Question 12

When a company issues preferred stock with a cumulative feature,any time it skips a preferred dividend in one quarter,the amount it owes the next quarter is equal to the dividend for that quarter plus the dividend it skipped in the previous quarter.

Accepted Answer

This is correct. When a preferred stock has a cumulative feature, any missed dividend payments are carried forward to the next quarter and must be paid along with the current quarter's dividend.

Question 13

Bonds are shares of ownership in a corporation.

Accepted Answer

Bonds are not shares of ownership in a corporation. They are a form of debt where the purchaser loans money to the corporation and in return receives interest payments and the promise of repayment of the principal amount at a later date.

Question 14

A secured bond is a bond that is backed by a pledge of specific assets.

Accepted Answer

A secured bond is a bond that is secured by a pledge of specific assets which serve as collateral, providing additional security for the bondholder in the event of default by the issuer.

Question 15

Securities markets are where firms raise funds needed primarily to meet their short-term financial needs.

Accepted Answer

Securities markets are primarily used by firms to raise funds for long-term financial needs, such as funding new projects or expansions, rather than short-term financial needs. Short-term financial needs are typically met through short-term borrowing, such as through a line of credit or commercial paper.

Question 16

A capital gain is an additional payment the company makes to the holder of one of its securities over and above the normal dividend or interest payment.

Accepted Answer

A capital gain refers to the profit made by selling a security for a higher price than what was paid for it. It is not a payment made by the company to the holder of its securities.

Question 17

Serial bonds are a series of bonds that were issued on different dates but all come due at the same time.This arrangement is designed to simplify the repayment of the principal.

Accepted Answer

Serial bonds are issued on the same date but mature at different times, allowing for staggered repayment of principal over several periods.

Question 18

Callable bonds and convertible bonds are examples of sinking funds.

Accepted Answer

Callable bonds and convertible bonds are not examples of sinking funds. A sinking fund is a provision in a bond agreement where the issuer sets aside money regularly to help repay the principal of the bond. Callable bonds can be redeemed by the issuer before maturity, while convertible bonds can be exchanged for common stock.

Question 19

A sinking fund consists of funds set aside to retire bonds over a period of time.Money deposited into a sinking fund is used to call in bonds or purchase bonds on the open market over a period of several years.

Accepted Answer

This statement accurately describes what a sinking fund is and how it is used.

Question 20

Corporations use securities markets to raise long-term financial capital from investors.

Accepted Answer

Corporations can raise capital by issuing stocks or bonds in securities markets, where investors can buy and sell these securities. This allows corporations to access large amounts of capital from numerous investors, in exchange for a share of ownership or interest payments on the investment.

Quiz 9: Securities Markets : Trading Financial Resources

When the market price of a bond is above its par value,it sells at a premium; if it's below its par value,it is selling at a discount.

The par value of a bond is the value of that bond at its maturity.It represents what the firm must pay the bondholder when the bond matures.

A convertible bond is a bond that gives its holder the right to exchange it for a stated number of shares of common stock at some specified time period.

A coupon rate is the penalty the issuing company must pay to bondholders when it redeems bonds before their maturity date.

Three key types of securities issued by corporations to meet their long-term financial needs are common stock,preferred stock,and bonds.

A bond's maturity date is the date when a bond will come due and the issuing company must pay the principal amount owed to the bondholder.

Preferred shareholders are guaranteed to receive a dividend every quarter.

A debenture is a bond that is backed by a pledge of a specific asset,such as property or equipment.

Common stock is the basic form of ownership in a corporation.

A bond is a long-term debt instrument issued by a corporation or government entity.

A callable bond allows the person holding the bond to redeem it before its maturity date for the par value.

When a company issues preferred stock with a cumulative feature,any time it skips a preferred dividend in one quarter,the amount it owes the next quarter is equal to the dividend for that quarter plus the dividend it skipped in the previous quarter.

Bonds are shares of ownership in a corporation.

A secured bond is a bond that is backed by a pledge of specific assets.

Securities markets are where firms raise funds needed primarily to meet their short-term financial needs.

A capital gain is an additional payment the company makes to the holder of one of its securities over and above the normal dividend or interest payment.

Serial bonds are a series of bonds that were issued on different dates but all come due at the same time.This arrangement is designed to simplify the repayment of the principal.

Callable bonds and convertible bonds are examples of sinking funds.

A sinking fund consists of funds set aside to retire bonds over a period of time.Money deposited into a sinking fund is used to call in bonds or purchase bonds on the open market over a period of several years.

Corporations use securities markets to raise long-term financial capital from investors.