Finance Chapter 10 True/False

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A bond will sell at a premium if its required return or discount rate is greater than its coupon rate.

F

A bond with a coupon rate of 4% and a discount rate of 6% will pay $60 in interest each year.

F

A convertible bond can be converted, at the issuing firm's option, into a specific number of shares of the issuer's common stock.

F

A trustee represents the company to ensure that the covenants of the bond indenture are met.

F

Common stock possesses the highest claim on the assets and cash flow of the firm.

F

During periods of economic expansion, firms usually rely more on internal sources of funds.

F

Global bonds are generally denominated in euros and are marketed globally.

F

Long term business funds are obtained by issuing commercial paper and corporate bonds.

F

Mortgage bonds are secured by home mortgages

F

Most bonds currently issued in the United States today are bearer bonds.

F

Preferred stock is an equity security that has a senior claim to the firm's earnings and assets over bonds.

F

Preferred stock pays a dividend that is equal to its par value.

F

Private placements must be approved by the Securities and Exchange Commission (SEC).

F

Real assets are claims against the income or assets of individuals, businesses, and governments.

F

The call price of a callable bond is typically equal to par value plus two years interest.

F

The claims of collateralized bondholders are junior to the claims of debenture holders.

F

The par value of a common stock is meaningful in that it is often used to determine the fixed annual dividend.

F

The shorter the maturity of a fixed-rate debt instrument, the greater the reduction in its value to a given interest rate increase.

F

The values of stocks and bonds are not affected by time value of money concepts.

F

Zero coupon bonds are not suited for tax-exempt accounts such as IRAs or pension funds.

F

A bond will sell at a discount if its required return or discount rate is greater than its coupon rate.

T

A debt holder may force the firm to abide by the terms of the debt contract even if the result is reorganization or dissolution of the firm.

T

Bond covenants are the best way for bondholders to protect themselves against dubious management actions.

T

Bond issues of a single firm can have different bond ratings if their security provisions differ.

T

Bondholders have priority claims over equity holders to a firm's assets and cash flows.

T

Callable bonds can be redeemed prior to maturity by the firm.

T

Callable preferred stock gives the corporation the right to retire the preferred stock at its option.

T

Common stock possesses the lowest claim on the assets and cash flow of the firm.

T

Convertible preferred stock has a special provision that makes it possible to convert it to common stock of the corporation, generally at the stockholder's option.

T

Credit risk is another term for default risk.

T

Eurodollar bonds are dollar-denominated bonds that are sold outside the United States.

T

Financial assets are claims against the income or assets of individuals, businesses, and governments.

T

Firms issue more bonds than equities

T

Global bonds usually are denominated in U.S. dollars and have offering sizes that typically exceed $1 billion.

T

Many callable bonds possess a call deferment period which is a specified period of time after the issue during which the bonds cannot be called.

T

Most bonds currently issued in the United States today are registered bonds.

T

Most of the annual funds raised from security issues come from corporate bond sales.

T

Subordinate debentures are bonds whose claims are junior to the claims of those holding debenture bonds.

T

The bond issuer does not necessarily know who is receiving interest payments on bearer bonds.

T

The higher the discount rate or yield to maturity, the lower the price of a bond.

T

The par value of a common stock is an accounting and legal concept that bears no relationship to a firm's stock price or book value.

T

The par value of a preferred stock is meaningful in that it may be used to determine the fixed annual dividend.

T

There is an inverse relation between debt instrument prices and nominal interest rates in the marketplace.

T

Yankee bonds are U.S. dollar-denominated bonds that are issued in the United States by a foreign issuer.

T

nflation-protected Treasury notes have a principal value that changes in accordance with the consumer price index (CPI).

T


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