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1
Unsecured corporate bonds are called debentures.
A)True
B)False
2
The bond indenture stipulation that new debt cannot be issued with a higher seniority than the current issue is called a positive pledge clause.
A)True
B)False
3
The conversion value of a bond = Conversion price × Conversion ratio.
A)True
B)False
4
Bonds which are secured by _____ are called mortgage bonds.
A)future sales
B)a property lien
C)inventory
D)accounts receivable
E)current assets
5
You are comparing two comparable bonds. Bond X is non-callable, has a YTM of 10 percent, and matures in 5 years. Bond Y is callable at par at any time, has a YTM of 10 percent, and matures in 5 years. If the YTM on these bonds were to decrease to 7 percent, Bond _____ would _____ in price more than Bond _____.
A)X; decrease; Y
B)Y; decrease: X
C)X; increase: Y
D)Y; increase; X
E)Neither bond will experience a change in value.
6
A convertible bond has a $1,000 par value and a conversion ratio of 25. The bond has a coupon rate of 5.5 percent, pays interest semiannually, and matures in 8 years. Comparable bonds which are not convertible have a yield to maturity of 5.7 percent. What is the intrinsic value of the convertible bond if the stock price is $39 a share?
A)$975.00
B)$981.13
C)$987.29
D)$991.14
E)$1,000.00
7
Webster, Inc., has a bond issue outstanding that matures in 12 years. The bonds have a coupon rate of 7 percent with interest paid semiannually. The bonds are callable after 4 more years and have a yield to call of 8.88 percent. What is the call price if the current price is $987?
A)$991.13
B)$994.06
C)$996.33
D)$1,048.00
E)$1,069.58
8
Why do corporations own the majority of the outstanding preferred stock?
A)conversion feature
B)fixed income stream
C)voting rights
D)management control
E)tax break
9
The credit rating of a bond considers which of the following risks?
  1. caliber of company management
  2. bond seniority
  3. interest rate risk
  4. financial strength of the issuer
A)II and III only
B)I, II, and IV only
C)I, II, and III only
D)II, III, and IV only
E)I, II, III, and IV
10
High-yield bonds:
A)are all fallen angels.
B)pay lower coupon rates than investment-grade bonds.
C)have a lower probability of default than junk bonds.
D)are avoided by institutional investors.
E)are actually just junk bonds.





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