Finance Ch. 6 Review
Quiz yourself by thinking what should be in
each of the black spaces below before clicking
on it to display the answer.
Help!
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| Issuing zero coupon bonds might appeal to a company that is considering investing in a long-term project that will not generate positive cash flows for several years. (True or False?) | True
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| Because junk bonds are such high-risk interments, the returns on such bonds aren't very high and the existence of the market detracts from social welfare. (True or False?) | False
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| LIBOR is an acronym for London Interbank Offer Rate, which is an average of interest rates offered by London banks to U.S. corporations. (True or False?) | False
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| Restrictive covenants are designed so as to protect both the bondholder and the issuer even though they may constrain the actions of the firm's managers. Such covenants are contained in the bond's indenture. (True or False?) | True
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| If a firm raises capital by selling new bonds, the buyer is called the "issuing firm," and the coupon rate is generally set equal to the required rate. (True or False?) | False
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| Regardless of the size of the coupon payment, the price of a bond moves in the opposite direction from interest rate movements. For example, if interest rates rise, bond prices fall. (True or False?) | True
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| You have just noticed in the financial pages of the local newspaper that you can buy a bond ($1,000 par) for $800. (True or False?) | True
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| A bond differs from term in loans in that | a bond issue is generally advertised, sold to many investors and is offered to the public.
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| A bond that can be redeemed for cash at the bondholder's option is called what? | Putable Bond
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