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32) Which type of bond grants the bond holder the right to force the bond's issuer to repay the
bond at a stated price given that a certain situation(s) occurs?
A) Put bond
B) Cat bond
C) NoNo bond
D) Income bond
E) Warrant bond
33) Bonds with attached warrants are frequently issued:
A) with very low coupons.
B) at a greatly discounted price.
C) with an attached share of preferred stock.
D) with a share purchase price set equal to the market price at time of share purchase.
E) with an attached share of common stock.
34) Which type of bond only pays coupon payments if it can do so from the income earned by
the firm?
A) NoNo bond
B) Readi-cash bond
C) Floater bond
D) LIBOR-based bond
E) Income bond
35) Which type of bond is a city or state most likely to use as a means of offsetting their cost of
damages caused by a hurricane?
A) Convertible bond
B) NoNo bond
C) Cat bond
D) Put bond
E) CoCo bond
36) Which set of circumstances would best ensure the price of a bond with attached warrants will
increase given no change in the bond's credit quality or terms?
A) An increase in both the market rate of interest and the underlying stock price
B) A decrease in the market rate of interest and an increase in the underlying stock price
C) An increase in the market rate of interest and a decrease in the underlying stock price
D) A decrease in both the market rate of interest and the underlying stock price
E) A decrease in the market rate of interest with no change in the underlying stock price
37) A revolving bank line of credit:
A) generally requires the borrower to borrow the entire credit line amount at some point in time.
B) generally involves a fee charged to the borrower on the unused portion of the revolver.
C) may only be offered for periods of one year or less.
D) is generally free of charge until money is actually borrowed.
E) allows the borrower to determine the amount of credit to be granted.
38) Which one of these statements correctly applies to either a leveraged or an unleveraged
syndicated loan?
A) The loan will always be rated as investment grade.
B) The loan may not be publicly traded.
C) The loan arranger is not involved with the actual lending.
D) Each bank that participates negotiates the terms for its portion of the overall loan.
E) Each bank has its own loan agreement with the borrowers.
39) Which characteristic does not apply to Eurobonds?
A) Commonly traded from London
B) Always denominated in euros
C) Always denominated in a single currency
D) Generally denominated in the issuer's home currency
E) Issued in multiple countries
40) Bulldog bonds are associated with which country?
A) Spain
B) Great Britain
C) France
D) Germany
E) Morocco
41) Rembrandt bonds are associated with which country(ies)?
A) The Netherlands
B) Switzerland
C) Germany
D) Belgium
E) Austria and Hungary
42) The term financial deficit is defined as the:
A) loss realized on bonds that are sold for less than their purchase price.
B) amount needed to fund all interest payments on currently outstanding debt.
C) total amount of cash flow required from all sources to meet the needs of the uses of cash.
D) amount of cash flow that must be funded internally.
E) uses of cash flow minus the cash flow available from internal sources.
43) What is the predominant source of financing for positive NPV projects by U.S. nonfinancial
corporations?
A) Preferred stock
B) Internally-generated funds
C) Common stock
D) Publicly-issued debt
E) Privately-issued debt
44) Recently, U.S. nonfinancial corporations have been:
A) net repurchasers of stock.
B) issuing new shares of stock in record numbers.
C) primarily relying on external debt.
D) paying off external debt at a record pace.
E) net issuers of stock.
45) Since 1975 U.S. nonfinancial corporations have tended to have debt-equity ratios that are:
A) steadily rising due to the low interest rate environment.
B) less than 1.0.
C) averaging in the .8 to .9 range.
D) relatively stable over time.
E) relatively unaffected by stock market movements.
46) Financial economists prefer to use market values rather than book values when measuring
debt ratios because market values are:
A) more stable than book values.
B) a better reflection of current information.
C) net of taxes.
D) used by Standard & Poor's to measure credit worthiness.
E) most commonly required by bond covenants.
47) There are three seats on the board of directors of MMT, Inc., up for election. The firm has
175,000 shares of stock outstanding and uses cumulative voting. Each share is granted one vote
per open seat. You currently own 10,000 shares that have a market value of $23 each. How much
must you spend, if anything, to acquire sufficient shares to guarantee your election to the board?
Assume no one else votes for you.
A) $1,111,690
B) $776,273
C) $830,814
D) $1,006,273
E) $688,230
48) There are seven seats on the board of directors of Furniture Unlimited up for election. The
firm has 246,500 shares of stock outstanding and uses straight voting. Each share is granted one
vote for each open seat. How many shares must you control if you want to guarantee your
election to the board assuming no one else votes for you?
A) 123,250
B) 123,251
C) 30,814
D) 35,215
E) 30,813
49) There are five seats on the board of directors of Atlas Corp. up for election. The firm has
120,000 shares of stock outstanding and uses cumulative voting. Each share is granted one vote
per open seat. How many shares must you control if you want to guarantee your election to the
board assuming no one else votes for you?
A) 24,000
B) 23,999
C) 20,001
D) 20,000
E) 24,001
50) DLT has cumulative preferred stock outstanding that calls for quarterly dividend payments
of $1.50 each. Due to its financial situation, the firm has not paid these preferred dividends for
the past two quarters. What amount per share must be paid to the preferred shareholders this
quarter if the firm also wants to pay a dividend on its common stock?
A) $1.50
B) $3.00
C) $4.50
D) $6.00
E) $7.50
51) Analysts estimate that one year from today, a bond has a probability of 40 percent of being
priced at $950 and a probability of 60 percent of being priced at $1,050. The bond is also callable
at any time at $1,010. What is the expected value of this bond in one year?
A) $995
B) $980
C) $1,000
D) $1,010
E) $986
52) Analysts estimate that a bond has an equal probability of being priced at either $940 or
$1,050 one year from today. The bond is also callable at any time at $1,020. What is the
expected value of this bond in one year?
A) $995
B) $980
C) $1,000
D) $1,020
E) $940
53) Identify the general rights that are commonly granted to common stock shareholders.
54) Explain some of the means by which a select group of shareholders can retain control over a
corporation while still raising equity capital outside of their group.
55) Explain the main differences between debt and equity.
56) Identify three key duties of a bond trustee.
57) Bond issuers will call bonds when it is favorable for them to do so. The benefit the issuer
receives is a cost to the bondholders. Explain some of the ways in which bondholders are
protected from calls.
