GenBus 310 - Final Exam Finance
EXAM COMPLETE QUESTIONS AND
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When a corporation or government wishes to borrow
money from the public on a long-term basis, itusually does
so by issuing, or selling, debt securities called -
✔✔ANSWER✔✔-bonds
Bonds are standardized debt instruments issued by -
✔✔ANSWER✔✔-federal governments (Treasurys and
Sovereigns), state and local governments (Munis), and
corporations, that regularly trade in secondary markets
the borrower - ✔✔ANSWER✔✔-the bond issuer
lenders - ✔✔ANSWER✔✔-the bondholders
The indenture spells out all the salient features of abond
such as - ✔✔ANSWER✔✔-the principal, the face value or
par value, the number of bonds issued, when the issuer
will pay off the debt, the maturity date, and any protective
covenants
,The indenture specifies what procedures will ensue should
the issuer - ✔✔ANSWER✔✔-default, fail to meet its
contractual obligations, such as missing an interest
payment.
the issuer makes regular interest-only payments to the
bondholders called - ✔✔ANSWER✔✔-coupon payments.
When interest rates rise - ✔✔ANSWER✔✔-the present
value of the bond's remaining cash flows declines and
may become a discount bond
When interestrates fall - ✔✔ANSWER✔✔-the bond price
will rise and may become a premium bond
Bond prices and interest rates move in ______ directions -
✔✔ANSWER✔✔-opposite
Yields are - ✔✔ANSWER✔✔-APRs
All else equal, bonds with long times to maturity have
______ than shorter maturities and compensate the
bondholders with a risk premium - ✔✔ANSWER✔✔-more
price risk
The term structure of interest ratesshows that as the time
to maturity of Treasurys increases - ✔✔ANSWER✔✔-the
price risk premia increase as well
,Companies such as Standard and Poor's (S&P), Moody's,
and Fitchassess the - ✔✔ANSWER✔✔-creditworthiness
of bond issues and assign ratings based on their analyses.
The ownership claims may be in the form of -
✔✔ANSWER✔✔-common stock or preferred stock
Preferred Stock typically receives a regular dividend
payment always of the same amount but does not have
____ - ✔✔ANSWER✔✔-voting rights
Common stock has the right to vote on important
corporate matters but does not - ✔✔ANSWER✔✔-expect
steadydividends like those of preferred
If the company misses a preferred dividend payment, it
goes into - ✔✔ANSWER✔✔-arrears
When in arrears the commonstockholders cannot receive
their dividends until - ✔✔ANSWER✔✔-the corporation
makes the preferred stockholders whole again
In the case of common stock, firms often try to _____
dividends through time - ✔✔ANSWER✔✔-increase
A problem with the dividend-based approach to common
stock valuation is that many companies don't -
✔✔ANSWER✔✔-pay dividends
, American-style - ✔✔ANSWER✔✔-A bond that makes
coupon payments every six months. The amount equals
one halfthe coupon rate times the face value.
arrears - ✔✔ANSWER✔✔-The missed dividends a
company owes to its preferred stockholders
bond - ✔✔ANSWER✔✔-A long-term standardized debt
instrument that may trade in secondary markets
bonds issued - ✔✔ANSWER✔✔-The total number of
bonds issued. The number of bonds issued times the face
value isthe total amount of the loan
bond issuer - ✔✔ANSWER✔✔-The borrower on one side
of a bond issue
bondholder - ✔✔ANSWER✔✔-The lender on one side of a
bond issue
common stock - ✔✔ANSWER✔✔-Owner equity which has
the lowest priority for dividends and in bankruptcy, but
canvote on the board of directors and other important
corporate matter
comparables valuation or market multiples approach -
✔✔ANSWER✔✔-A valuation technique that applies the
law ofone price by combining the appropriate multiple from
a comparable firm with information specific to thefirm we
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