Debt (Corporate Debt)
2.13) *A customer purchases a convertible bond at 90, convertible into the common stock at $40. The common stock is currently trading at $36. The company declares a 25% stock dividend. The bond trust indenture includes an anti-dilution clause. After the ex date for the stock dividend, the conversion price for this bond issue will be:*
$40
2.18) *A customer buys 10M Allied Corporation 8% debentures, M'35, at 90 on Monday, October 8th. The interest payment dates are Feb. 1st and Aug. 1st. The trade settled on Thursday, October 10th. The amount of the next interest payment will be:*
$400 Face amount (10M) = $10,000 Annual interest (8%) = $800 Semi annual payment = $400 (Accrued interest paid from buyer to seller on settlement has no effect on the payments made by the issuer to the bondholder on record)
2.27) *Ford Motor Company has issued 8% convertible debentures, convertible at a 12.5:1 ratio. Currently, the debenture is trading at 90. The stock is trading at $72. What is the conversion price of the stock?*
$80
2.25) *The maximum maturity on Commercial paper is:*
270 days
2.19) *A customer buys 10M Allied Corporation 8% debentures, M'41, at 90 on Tuesday, October 12th. The interest payment dates are Feb. 1st and Aug. 1st. The trade settled on Thursday, October 14th. The customer will receive how many months of interest in the next payment?*
6 months
2.17) *A customer buys 10 Allied Corporation 8% debentures, M'35, at 90 on Monday, October 8th. The interest payment dates are Feb. 1st and Aug. 1st. The trade settled on Wednesday, October 10th. How many days of accrued interest will the buyer pay to the seller?*
69 *Interest Accrual* = - 30 day month / 360 day year - up to but NOT including settlement date Interest payments: Feb. 1st & Aug. 1st Purchase date: October 8th Settlement date: October 10th Working date: October 9th Aug: 30 days Sept: 30 days Oct: 9 days = 69 days of accrued interest owed to the seller
2.30) *Equipment trust certificates would most likely be issued by a(n):*
Airline
2.26) *A short term Corporate debt which is backed solely by the full faith and credit of the issuer is:*
Commercial paper
2.15) *Accrued interest on a new issue corporate bond is calculated from:*
Dated date to settlement date
2.11) *A corporate bond which is backed solely by the full faith and credit of the issuer is a:*
Debenture
2.16) *A customer has bought a fully registered Exxon-Mobil debenture. The customer will receive interest payments from:*
From Paying agent twice a year
2.23) *A guaranteed Corporate bond is one which is:*
Guaranteed by another corporation
2.22) *Which of the following affect the marketability of corporate bonds?* I. Bond rating II. Maturity III. Block size IV. Bond denominations
I. Bond rating II. Maturity III. Block size
2.8) *The term "funded debt" applies to:* I. Commercial paper II. Corporate bonds III. Municipal notes IV. Treasury Bills
II. Corporate bonds
2.3) *Zero Coupon bonds:* I. Pay interest semi-annually II. Pay interest at maturity III. Are bought at a discount and mature at par IV. Are bought at a par and mature at a premium
II. Pay interest at maturity III. Are bought at a discount and mature at par
2.12) *A customer purchases a convertible bond at 90, convertible into the common stock at $40. The common stock is currently trading at $36. The company declares a 25% stock dividend. The bond trust indenture includes an anti-dilution clause. Which statements are true BEFORE the stock dividend was declared?* I. There is a bona fide arbitrage opportunity II. The conversion ratio is 25:1 III. The bond and the stock are trading at parity IV. If the bond is purchased and the equivalent number of common shares are sold short, there is an immediate profit.
II. The conversion ratio is 25:1 III. The bond and the stock are trading at parity
2.1) *Dealer offerings of corporate bonds found in Bloomberg are:* I. Retail quotes II. Wholesale quotes III. New issue offerings sold under a prospectus IV. Secondary market offerings
II. Wholesale quotes IV. Secondary market offerings
2.7) *In a corporate liquidation, the priority of claim to corporate assets is:* I. Unpaid wages and taxes II. Preferred stockholders III. Debenture bondholders IV. Mortgage backed bondholders
IV. Mortgage backed bondholders I. Unpaid wages and taxes II. Preferred stockholders III. Debenture bondholders
2.2) A corporation is going to tender 75% of its 10% subordinated debentures, M'25. The price of the offer will be decided by the:
Issuer
2.10) *A customer buys 10 PDQ Corporation 10% debentures, M'35, at 93 on Friday, June 12th in a regular way trade. The interest payment dates are March 1st and September 1st. The trade settles on:*
Tuesday, June 16th
2.28) *Ford Motor Company has issued 8% convertible debentures, convertible at a 12.5:1 ratio. Currently, the debenture is trading at 90. The stock is trading at $72. Which statement is TRUE?* a. The bond is trading at parity with the stock b. The stock is trading above the bond's parity price c. The stock is trading below the bond's parity price d. The parity price is based on the market price of the stock
a. The bond is trading at parity with the stock
2.4) *Which of the following bonds trade "flat"?: a. Unsecured bonds b. Income bonds c. Reset bonds d. Mortgage bonds
b. Income bonds
2.6) *TRACE reports trades of all of the following EXCEPT:* a. Corporate bonds b. Municipal bonds c. Government bonds d. Agency bonds
b. Municipal bonds
2.14) *All of the following are true statements regarding convertible bond issues EXCEPT:* a. At the time of issuance, the conversion price is set at a premium to the stock's current market price b. The yield on convertible issues is higher than the yield for similar non-convertible issues c. When the stock price is at a premium to then conversion price, bond price movements are usually caused by those of the stock d. When the stock price is at a discount to the conversion price, bond price movements are usually caused by interest rate changes
b. The yield on convertible issues is higher than the yield for similar non-convertible issues
2.21) *A corporation has posted a large financial loss for this year. It has a legal obligation to pay interest on all of the following bonds EXCEPT:* a. Debentures b. Subordinated debentures c. Adjustment bonds d. Equipment trust certificates
c. Adjustment bonds
2.5) *Standard and Poor's Bond guide:* a. Reports completed Corporate bond trades on a real-time basis b. Lists dealer offerings of Corporate bonds in the Secondary market c. Gives capsule summaries of every outstanding Corporate issues, including recent price, rating, and yield. d. Gives the details of each Corporate new issue that is coming to the market
c. Gives capsule summaries of every outstanding Corporate issues, including recent price, rating, and yield.
2.9) *All of the following bonds trade "flat" EXCEPT:* a. Defaulted bonds b. Zero coupon bonds c. Market discount bonds d. Adjustment (income) bonds
c. Market discount bonds
2.24) *All of the following corporate bonds are secured EXCEPT:* a. Equipment trust certificates b. Second mortgage bonds c. Sinking fund debentures d. Collateral trust certificates
c. Sinking fund debentures
2.20) *All of the following statements are true regarding corporate zero coupon bonds EXCEPT:* a. Zero Coupon bonds do not offer investors a current return b. Zero coupon bonds are usually suitable investments for Individual Retirement Accounts and Self Employed Retirement Plans c. the interest income on such obligations is not taxable until maturity d. The rate of return for zero coupon bonds is not subject to reinvestment risk associated with interest paying issues
c. the interest income on such obligations is not taxable until maturity
2.29) *All of the following are true statements regarding corporate obligations EXCEPT:* a. Debentures are usually term issues b. Commercial paper is usually sold at a discount c. Corporate yields are higher than municipal yields d. Most corporate bonds are traded through NYSE
d. Most corporate bonds are traded through NYSE
