Unit 2.2 - 2.3 SIE Exam Prep

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All of the following may be callable except A) preferred stock. B) common stock. C) muni bonds. D) corporate bonds.

B

If a bond is trading at a discount, which of the following rates is correctly ranked from high to low? A) Coupon rate, current yield, yield to maturity, yield to call B) Yield to call, yield to maturity, current yield, nominal yield C) Yield to call, current yield, nominal yield, coupon rate D) Nominal yield, yield to maturity, current yield, coupon rate

B

Of the debt and equity holders listed here, in what order would claimants receive payment in the event that a corporate bankruptcy liquidation needed to occur? I. Holders of secured debt II. Holders of subordinated debentures III. General creditors IV. Preferred stockholders A) IV, I, II, III B) I, III, II, IV C) I, II, III, IV D) III, I, II, IV

B

Secured corporate debt includes A) debt owed to suppliers. B) mortgage debt. C) preferred shareholder stock. D) debt owed to the federal government.

B

The first investors to get paid in corporate liquidations are holders of A) common stock. B) secured debt. C) debentures. D) preferred stock.

B

Which of the following bonds trade flat (without interest) unless interest payments are declared by the board of directors (BOD)? A) Mortgage bonds B) Income bonds C) Callable bonds D) Debentures

B

Which of the following is an unsecured corporate debt security? A) Equipment trust certificate B) Debenture C) Mortgage backed security D) Collateral trust certificate

B

A bank trustee holds the titles to assets a corporation has purchased and utilizes in its day-to-day business. The corporation issues debt securities backed by these assets. These securities are A) mortgage bonds. B) debentures. C) equipment trust certificates. D) collateral trust bonds.

C

A bond that is structured so that a portion of the principal is scheduled to mature at intervals over several years is A) a term bond. B) a balloon bond. C) a serial bond. D) a series bond.

C

Bondholders should expect that interest payments would always be forthcoming for all of the following except A) convertible bonds. B) debentures. C) income bonds. D) subordinated debentures.

C

A convertible feature for a corporate bond allows A) an issuer the ability to convert its debt obligations over to voting stockholders who would then hold the debt paper. B) a bondholder the opportunity to exchange a debt instrument for another debt instrument with shorter maturity. C) an issuer to convert its debt securities to those offered by another issuer. D) a bondholder to convert a debt instrument into securities that give the investor ownership rights.

D

A court has ordered a corporation to liquidate all assets under a federal bankruptcy proceeding. Which of the following is true? A) Preferred stockholders are paid before debtholders. B) There is no priority for the payment of wages to employees. C) Common stockholders are paid before preferred stockholders. D) Debtholders are paid before stockholders.

D

A secured debt security can be backed by a corporation's A) business reputation. B) credit rating. C) financial stability. D) manufacturing facilities.

D

An investor holding a corporate-issued mortgage bond is holding a debt security that is A) backed by real estate and therefore considered unsecured. B) backed by mortgage paper and therefore considered secured. C) backed by mortgage paper and therefore considered unsecured. D) backed by real estate and therefore considered secured.

D

For collateral trust bonds, all of the following are true except A) securities backing the debt can be securities of either fully or partially owned subsidiaries. B) the issuer deposits securities it owns into a trust. C) a trust serves as a depository holding the securities to serve as collateral. D) these are unsecured debt securities.

D

Regarding corporate bond issues, which of the following statements best describes secured debt and unsecured debt? A) Secured debt is asset backed, while unsecured debt is not. B) Only unsecured debt can be issued by corporations, while secured debt cannot be. C) Unsecured debt is asset backed, while secured debt is backed by the issuer's full faith and credit. D) Only secured debt can be issued by a corporation, while unsecured debt cannot be.

A

Subordinate debentures are senior to which of the following fixed income securities? A) Preferred stock B) Equipment trust certificates C) Mortgage bonds D) Collateral trust certificates

A

To the benefit of the issuer, a callable bond is likely to be called when interest rates A) fall. B) are volatile moving both up and down over short periods of time. C) remain stable for long periods of time. D) rise.

A

When an investor purchases a corporate bond, the investor is A) lending money to and becoming a creditor of the corporation. B) lending money to and becoming an owner of the corporation. C) borrowing money from and becoming an owner of the corporation. D) borrowing money from and becoming a creditor of the corporation.

A

When an issuer has equipment trust certificates outstanding, I. title to the assets backing the certificates are held in trust. II. the equipment is held in trust. III. the assets can be repossessed and sold by the trustee. IV. the certificates are unsecured because they represent the debt owed on the assets. A) I and III B) II and IV C) II and III D) I and IV

A

When the interest rates in the marketplace moves up or down, the price of all bonds move A) inversely. B) subversely. C) conversely. D) reversely.

A

Which one of the following best describes a debenture? A) An investment in the debt of another corporation B) An unsecured corporate debt obligation C) A long-term corporate debt obligation backed by the title to equipment owned by the corporation D) A debt obligation allowing the holder to purchase shares of the company's common stock

B

Your client is about to retire and wants to rearrange his portfolio in order to have predictable income. Which of the following would not be a good investment vehicle? A) AA-rated mortgage bonds B) Adjustment bonds C) U.S. Treasury notes D) AA-rated debentures

B

When a corporation issues a mortgage bond, the issue's total value A) must equal the value of the real estate by which it is backed. B) should be greater than that of the real estate it is backed by. C) should be less than that of the real estate it is backed by. D) is unrelated to the value of the real estate because it is an unsecured debt instrument.

C

Which of the following is an example of an unsecured debt security? I. Debenture II. Preferred stock III. Mortgage bond IV. Income bond A) I and III B) II and IV C) I and IV D) I and II

C

Which of the following is an unsecured debt instrument? A) Junior lien mortgage bonds B) Equipment trust certificates C) Aaa/AAA-rated debentures D) Collateral trust certificates

C

Which of the following projects would most likely be funded with a revenue bond? A) A city hall B) A public school C) Sports stadium D) A county court house

C

Which of the following terms best describes a corporate debt instrument secured by a pledge by the issuer of property that consists of stocks or bonds of other corporations? A) Equipment trust certificate B) Unit investment trust C) Collateral trust certificate D) Debenture

C

Corporate shareholder structure regarding liability is different from that of a partnership. In recognizing that, which of the following is true? A) Neither corporate shareholders nor business partners can be held personally liable for debts of the business if bankruptcy occurs. B) Corporate shareholders and business partners are personally liable for debts of the businesses if bankruptcy occurs. C) A partner cannot be forced to liquidate personal assets during a partnership bankruptcy. D) A corporate shareholder cannot be forced to liquidate personal assets during a corporate bankruptcy.

D

Given bonds are interest-rate sensitive, which of the following statements regarding put and call features for bonds are true? I. The put feature would likely be exercised if interest rates fall. II. The put feature would likely be exercised if interest rates rise. III. The issuer will likely call bonds if interest rates fall. IV. The issuer will likely call bonds if interest rates rise. A) III and IV B) I and IV C) I and II D) II and III

D

If a bond is trading at a premium, which of the following rates is correctly ranked from high to low? A) Yield to call, current yield, nominal yield, coupon rate B) Yield to call, yield to maturity, current yield, nominal yield C) Nominal yield, yield to maturity, current yield, coupon rate D) Coupon rate, current yield, yield to maturity, yield to call

D

A company reorganizing with the intent to emerge from a bankruptcy is likely to issue which of the following type of bonds to accomplish that goal? A) Adjustment bonds B) Subordinated debt C) Mortgage bonds D) Debentures

A

A written promise made by a corporation to pay the principal at its due date and interest on a regular basis on one of its debt issues but backed by no physical assets or titles to assets could only be A) a debenture. B) a collateral trust bond. C) a mortgage bond. D) an equipment trust certificate.

A

An income bond is also known as A) an adjustment bond and is unsecured. B) a debenture and is secured. C) a debenture and is unsecured. D) an adjustment bond and is secured.

A

If investors have income listed as their investment objective, they would not hold which of the following securities in their portfolio? A) Income bonds B) Preferred stock C) Corporate bonds D) U.S. T-notes

A

In the event that a liquidation needs to occur, subordinated debtholders A) agree to be paid back last of all debtholders. B) agree to paid back after all shareholders. C) will be paid back before all senior debtholders. D) will be paid back specifically before all mortgage bondholders.

A

List the order of payment from first to last in the event of a corporate liquidation. I. Secured debt II. Preferred shareholders III., Unsecured debt IV. Common shareholders A) I, III, II, IV B) I, II, IV, III C) II, IV, III, I D) III, I, IV, II

A

Once a corporate liquidation proceeding in court is underway, common shareholders know that A) they are not guaranteed to be paid back any amount. B) if preferred shareholders claims are met, their claims are guaranteed to be met. C) only if they are paid first, can bondholders have their claims met. D) they are guaranteed only payment of their initial investment.

A

Regarding a corporate bankruptcy and the liquidation priority, which of the following is accurate? A) Debt securities claims are satisfied before equity securities claims. B) Claims for taxes due are satisfied after all shareholder equity claims. C) Wages due employees are satisfied after all debt and equity claims. D) Subordinated debt claims are satisfied before all other debt claims.

A

Regarding bankruptcy proceedings, A) courts protect both corporate and individual filers from creditors. B) the procedure is only available to individuals seeking protection from creditors and not business entities. C) liquidation of assets must occur first before the courts can offer protection from creditors. D) a plan for reorganization must be submitted first before the courts can offer protection from creditors.

A

Which of the following is a characteristic shared by both corporate debentures and income bonds? A) Both must pay principal as it comes due. B) Both are a type of mortgage bond. C) Neither pay interest. D) Both are secured by assets of the corporation.

A

Which of the following is the most junior security? A) Preferred stock B) Collateral trust certificates C) Subordinate debentures D) Equipment trust certificates

A

Holders of subordinated debt instruments know that in the case of a corporate liquidation, they A) have no priority claim on assets. B) will be paid back last of all debtholders. C) will be paid only after common shareholders claims are satisfied. D) must be paid, regardless of any other claims being met.

B

A bond backed by a corporation's full faith and credit is I. secured. II. unsecured. III. backed by a specific asset. IV. not backed by any assets. A) II and III B) II and IV C) I and IV D) I and III

B

A company has issued bonds (debt securities) to investors. For these investors, these securities represent A) equity in the issuing company. B) a loan to the issuing company. C) ownership in the existing company. D) liability for the issuing company's debt.

B

A company's board of directors (BOD) approves a dividend payment. When this occurs it is recognized as the A) dividend disbursement date. B) declaration date. C) record date. D) ex-dividend date.

B

A corporate bankruptcy liquidation took place. Of the following—general creditors, secured bondholders, subordinated debenture holders, accrued taxes—who was paid first and who was paid last? A) Secured bondholders first, general creditors last B) Secured bondholders first, subordinated bondholders last C) Secured bondholders first, accrued taxes last D) General creditors first, secured bondholders last

B

A put feature attached to a bond allows A) a bondholder to put a bond back to the issuer for redemption at times that will benefit the issuer. B) a bondholder to put a bond back to the issuer for redemption at times that will benefit the bondholder. C) a bondholder to hold a bond beyond the maturity date benefitting the bondholder. D) an issuer to put additional bonds to existing bondholders before the maturity date of bonds they hold.

B

An individual invested in a company by purchasing 1,000 shares of common stock. The company has, unfortunately, gone bankrupt. This investor A) is guaranteed to receive back all that was invested and is not liable for any corporate debts that cannot be satisfied during the dissolution process. B) may lose all that was invested but is not liable for any corporate debts that cannot be satisfied during the dissolution process. C) is guaranteed to receive back all that was invested but may have to liquidate personal assets to satisfy any debts of the corporation. D) may lose all that was invested and can be found to be liable for any corporate debts that cannot be satisfied during the dissolution process.

B

An issuer has a subordinated debt issue outstanding. Which of the following is true? A) A subordinated debenture has a claim that is senior to all other debt and senior to common stock. B) A subordinated debenture has a claim that is junior to all other debt but senior to preferred stock. C) A subordinated debenture has a claim that is senior to all other debt issues and equity issues. D) A subordinated debenture has a claim that is junior to all other debt issues.

B

An issuer has issued bonds with a call feature. It is likely that these bonds have A) a coupon that need not reflect the impact of the call feature. B) a higher coupon than similar bonds without the feature. C) a coupon that will be called away by the issuer before maturity. D) a lower coupon than similar bonds without the feature

B

Bonds can be issued with additional features attached, making them more attractive to investors. All of the following can be considered such features except A) puttable. B) maturity. C) convertible. D) callable.

B

Rank the following investors from lowest to highest priority in liquidation. A) Debentures, secured debt, preferred stock, common stock, subordinated debt B) Common stock, preferred stock, subordinate debentures, debentures, secured debt C) Secured debt, debentures, subordinate debentures, preferred stock, common stock D) Preferred stock, debentures, subordinate debentures, secured debt, common stock

B

Regarding filing for corporate bankruptcy, which of the following is true? A) Reorganization means that property will be taken and sold to repay all debts. B) Liquidation means that property will be taken and sold to repay all debts. C) Reorganization can only occur after liquidation in a corporate bankruptcy filing. D) Reorganization does not allow for continued operations to occur.

B

Which of the following securities carries the greatest amount of risk in conjunction with a corporate liquidation? A) Preferred stock B) Common stock C) Debentures D) Corporate bonds

B

Which of the following statements is true of income bonds? A) Unlike other bonds, they pay income monthly. B) Unlike other bonds, they don't pay income unless declared by the board of directors. C) Unlike other bonds, they pay income annually. D) Unlike other bonds, they pay income quarterly.

B

A bondholder has invested in a certificate backed by equipment that the issuer owns and utilizes in its daily operations. This issuer is most likely A) a utility. B) the federal government. C) a transportation company. D) a political subdivision (municipality).

C

A corporation has issued debt securities backed by the shares of another corporation that it owns. These debt securities are known as A) mortgage bonds. B) debentures. C) collateral trust bonds. D) equipment trust certificates.

C

A guaranteed bond is A) backed by physical assets of either a parent company or a subsidiary company. B) a secured debt instrument. C) debt backed by another company, such as a parent company. D) debt backed by another company, such as a subsidiary company.

C

A guaranteed bond is usually guaranteed by which of the following entities? A) The U.S. government B) The broker-dealer who sold it C) A parent company D) The U.S. Guarantee Association

C

An investor anticipates that a fall in interest rates is imminent. This investor, now wanting to purchase bonds in order to lock in interest income, would likely buy A) either callable or noncallable bonds. B) callable bonds. C) noncallable bonds. D) neither callable nor noncallable bonds.

C

An investor has purchased bonds having a put feature attached. With this put feature, it is likely that these bonds were issued with A) a coupon that need not reflect the impact of the call feature. B) a coupon that will be called away by the issuer before maturity. C) a lower coupon than similar bonds without the feature. D) a higher coupon than similar bonds without the feature.

C

If a bond is trading at a discount, which of the following rates is correctly ranked from low to high? A) Yield to call, current yield, nominal yield, coupon rate B) Yield to call, yield to maturity, current yield, nominal yield C) Coupon rate, current yield, yield to maturity, yield to call D) Nominal yield, yield to maturity, current yield, coupon rate

C

To the benefit of the bondholder, a puttable bond is likely to be put back to the issuer when interest rates A) remain stable for long periods of time. B) fall. C) rise. D) are volatile, moving both up and down over short periods of time.

C

XYZ Corporation is guaranteeing a debt issue for the IHG Company. Regarding these bonds, which of the following is true? A) These bonds are unsecured, with the value of the guarantee being as good as the strength of IHG the issuer. B) These bonds are secured, with the value of the guarantee being as good as the strength of XYZ. C) These bonds are unsecured, with the value of the guarantee being as good as the strength of XYZ. D) These bonds are secured, with the value of the guarantee being as good as the strength of IHG issuer.

C

A call feature attached to a bond allows A) a bondholder to hold a bond beyond the maturity date benefitting the bondholder. B) an issuer to call in a bond before maturity at times that will benefit the bondholder. C) a bondholder to call the issuer for a redemption before the maturity date. D) an issuer to call in a bond before maturity at times that will benefit the issuer.

D

If a company files for bankruptcy, which of the following investors would be most likely to be paid first? A) Debentures B) Preferred stock C) Common stock D) Mortgage bonds

D

In what order would claimants receive payment in the event of a corporate bankruptcy? I. Holders of secured debt II. Holders of subordinated debt instruments III. General creditors IV. Preferred stockholders A) IV, I, II, III B) III, I, II, IV C) I, II, III, IV D) I, III, II, IV

D

Income from an investment in debt securities is known as A) dividends. B) total return. C) capital gains. D) interest.

D

Interest on a 7% corporate bond would be paid to the investor as A) several checks totaling $70 each year. B) one annual $70 check. C) two semiannual checks for $70 each. D) two semiannual checks for $35 each.

D

Rank the following in order of payment at the time of a corporate liquidation, from first to last. I. Secured debtholders II. Preferred stock III. Subordinated debentures IV. Debentures A) III, IV, I, II B) III, IV, II, I C) IV, III, I, II D) I, IV, III, II

D

Rank the following investors from highest to lowest priority in liquidation. A) Debentures, secured debt, preferred stock, common stock, subordinated debt B) Common stock, preferred stock, subordinate debentures, debentures, secured debt C) Preferred stock, debentures, subordinate debentures, secured debt, common stock D) Secured debt, debentures, subordinate debentures, preferred stock, common stock

D

T-bonds are delivered in A) registered form to principal only. B) bearer form. C) physical certificates. D) book entry.

D

The risk of being the last to get paid in a corporate liquidation is characteristic of which of the following? A) Preferred stock B) Secured debt C) Subordinate debentures D) Common stock

D

The two classifications of chapters for corporate bankruptcies are I. liquidations. II. reorganizations. III. bankruptcy. IV. failures. A) II and III B) I and IV C) III and IV D) I and II

D

Which of the following corporate bonds is backed by the securities of other corporations or those of a subsidiary? A) Equipment trust certificate B) Mortgage bond C) Debenture D) Collateral trust bond

D


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