Principles of Finance 5e: Bond Features Quiz
18 Questions
0 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is the primary role of a trustee in a bond indenture?

  • To ensure the bondholder's interests are protected (correct)
  • To ensure the issuer's interests are protected
  • To manage the sinking fund for bond amortization
  • To facilitate the conversion of bonds to common stock

    • Which of the following is a bond feature that constrains the actions of the borrower?

  • Call provision
  • Conversion option
  • Sinking fund
  • Restrictive covenant (correct)

    • What is the purpose of a call provision in a bond contract?

  • To give the issuer the right to redeem the bonds before maturity (correct)
  • To constrain the actions of the borrower
  • To allow bondholders to exchange their bonds for common stock
  • To require the issuer to make annual payments to amortize the bond

    • Which bond feature allows bondholders to exchange their investment for a fixed number of shares of common stock?

    <p>Conversion option</p> Signup and view all the answers

    What is the purpose of a sinking fund in a bond issue?

    <p>To amortize the bond issue through required annual payments</p> Signup and view all the answers

    Which of the following is NOT a typical bond feature discussed in the text?

    <p>Maturity date</p> Signup and view all the answers

    What feature of preferred stock allows the issuing company to redeem or buy back the stock at a predetermined price?

    <p>Call provision</p> Signup and view all the answers

    What is the amount paid by the company in excess of the par value when calling or redeeming a preferred stock issue?

    <p>Call premium</p> Signup and view all the answers

    Which feature of preferred stock requires that any unpaid dividends be paid before common stock dividends can be distributed?

    <p>Cumulative dividends</p> Signup and view all the answers

    What provision effectively sets a maturity date for preferred stock issues?

    <p>Sinking fund</p> Signup and view all the answers

    Which statement about common stock is true?

    <p>It represents residual ownership in the company.</p> Signup and view all the answers

    What feature is NOT typically associated with preferred stock?

    <p>Voting rights</p> Signup and view all the answers

    What is a bond indenture?

    <p>A formal agreement between the bond issuer and bondholders</p> Signup and view all the answers

    Which of the following is NOT a major bond rating agency?

    <p>Bloomberg Bond Rating Agency</p> Signup and view all the answers

    What is the term for a provision in a bond indenture that restricts certain actions by the issuer?

    <p>Restrictive covenant</p> Signup and view all the answers

    Which of the following bonds are considered investment grade?

    <p>Bonds rated AAA</p> Signup and view all the answers

    What is a call provision in a bond indenture?

    <p>A provision giving the issuer the right to redeem bonds early</p> Signup and view all the answers

    How can a sinking fund be used in relation to bonds?

    <p>To periodically retire a portion of outstanding bonds</p> Signup and view all the answers

    More Like This

    Use Quizgecko on...
    Browser
    Open
    Browser
    Browser