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Multiple Choice
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1

The principal value of a bond is called the:
A)the coupon rate
B)the par value
C)the maturity value
D)none of the above
2

The _________ is the stated interest rate at the time the bond was issued.
A)coupon rate
B)effective rate
C)yield to maturity
D)internal rate of return
3

A ___________ is a long-term senior bond without collateral.
A)subordinated debenture
B)debenture
C)junior debenture
D)indenture
4

The method of bond repayment where bonds are paid off in installments over the life of the bond issue is called:
A)sinking fund provision
B)call provision
C)serial repayment
D)conversion
5

The method of bond repayment where debt is converted to shares of common stock in the company is called:
A)serial repayment
B)conversion
C)sinking fund provision
D)call feature
6

Firms generally decide to call their bonds when interest rates:
A)rise
B)drop
C)remain the same
D)there is no relationship between interest rates and the call provision
7

The current yield on a bond worth $900 with a par value of $1000 and a coupon rate of 10% is:
A)10%
B)11.11%
C)12.05%
D)none of the above
8

Zero coupon bonds:
A)are sold at par.
B)pay no interest payment
C)are sold at a deep discount.
D)b and c above
9

An advantage of debt financing is:
A)interest payments are tax deductible
B)the use of debt, up to a point, lowers the firm's cost of capital
C)does not dilute owner's earnings
D)all of the above
10

A capital lease:
A)is generally used by corporations more often than an operating lease.
B)is placed on the balance sheet.
C)is capitalized.
D)all of the above





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