Module 6: True (T) or False (F) Questions
Last updated: 07/10/2025 21:53
The questions are based on or inspired by the following references:
- Berk & DeMarzo, Corporate Finance, 5th ed. (2020)
- Brealey & Myers, Principles of Corporate Finance, 13th ed. (2020)
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⚠️ These exercises are powered by AI-assisted technologies and may contain occasional formatting or logic errors. Please report any issues you encounter so I can improve the experience.
📘 Part 1 (until Midterm)
| Module | Chapter | Slides | T/F | MCQ | Numeric | Long | Self-quiz |
|---|---|---|---|---|---|---|---|
| 6 | ch23 | 🎞️ | ✅ | ❓ | 🔢 | 📝 | 🧪 |
Mark T (True) or F (False) in each of the following sentences.
This is FALSE. Corporate debt typically carries some level of risk, such as credit risk.
This is FALSE. Sovereign debt refers to debt issued by a government, not a corporation.
This is FALSE. Private placement involves selling securities to a select group of investors, not the general public.
This is TRUE. CDOs are backed by pools of assets, which can include mortgages and loans.
This is FALSE. Syndicated loans are provided by a group of banks, not just a single bank.
This is FALSE. In a perfect capital market, the value of a firm remains unchanged when it repurchases shares using borrowed money (Modigliani–Miller theorem).
This is TRUE. Callable bonds can be redeemed early by the issuer, while non-callable bonds cannot.
This is FALSE. Callable bonds typically offer a higher yield due to the call option that compensates investors for call risk.
This is FALSE. Bond covenants can and often do include restrictions on issuer activities to protect bondholders.
This is FALSE. High-yield (junk) bonds offer higher yields because they carry greater credit risk.
This is TRUE. Commercial paper is used by large corporations to finance short-term liabilities like payroll or inventories.
This is TRUE. Convertible bonds allow investors to convert debt into equity under certain conditions.
This is TRUE. Credit ratings measure the risk of default associated with debt issuers.
This is TRUE. ABS are created by pooling various types of assets and issuing securities backed by those pools.
This is TRUE. This ratio indicates how much debt a company uses to finance its assets relative to shareholder equity.
This is TRUE. A bond indenture specifies the contractual details between the issuer and bondholders.
This is FALSE. Zero-coupon bonds do not pay periodic interest; instead, they are issued at a discount and pay face value at maturity.
This is FALSE. Treasury bills are short-term securities, usually maturing in less than one year.
This is TRUE. Investment banks underwrite and distribute bond offerings to investors.
This is FALSE. A sinking fund requires the issuer to make periodic payments to retire portions of the debt before maturity.
This is TRUE. Private placements target a limited group of investors, avoiding the regulatory requirements of public offerings.
This is TRUE. Underwriters assume the risk of distributing the bond issue by purchasing it from the issuer and selling to the market.
This is TRUE. The coupon rate determines the periodic interest payments to bondholders.
This is TRUE. A prospectus discloses the key terms, risks, and financial information of the bond issue.
This is TRUE. In bankruptcy, subordinated debt holders are paid after senior debt holders.
This is FALSE. Debentures are unsecured bonds backed only by the creditworthiness of the issuer.
This is FALSE. Bond prices move inversely to market interest rates.
This is TRUE. Restrictive covenants limit certain issuer actions to safeguard bondholder interests.
This is TRUE. A downgrade raises perceived credit risk, leading investors to demand a higher yield.
This is FALSE. A call provision benefits the issuer, not investors, and therefore reduces the bond’s value.
This is TRUE. Issuance costs such as underwriting fees reduce the amount of cash received by the issuer.
This is TRUE. Firms with lower credit ratings typically face higher interest costs to compensate for higher risk.
This is FALSE. Public offerings are strictly regulated and require registration and disclosure to investors.
This is FALSE. Convertible bonds can be converted into equity under specified terms.
This is FALSE. Senior secured bonds have higher priority over subordinated bonds in case of bankruptcy.
This is TRUE. YTM reflects the internal rate of return assuming the bond is held until it matures and all payments are made as scheduled.
This is FALSE. High-yield bonds are rated below investment grade, typically below BBB-.
This is TRUE. Issuers often must pay a call premium when redeeming bonds before maturity.
This is TRUE. Secured debt is backed by collateral, while unsecured debt relies solely on the issuer’s creditworthiness.
This is FALSE. Corporate debt can have short, medium, or long maturities depending on the financing needs.
This is FALSE. Public debt issuance requires full financial disclosure and adherence to securities regulations.
This is FALSE. Restrictive covenants limit managerial flexibility, so firms typically prefer fewer restrictions.
This is FALSE. Repayment schedules are defined by the loan or bond contract, not by the borrower’s discretion.
This is TRUE. Syndicated loans distribute risk by involving multiple lenders in a single credit agreement.
This is FALSE. The primary market is where new bonds are issued; trading between investors occurs in the secondary market.
This is TRUE. The secondary market enables investors to trade existing bonds, improving liquidity and price discovery.
This is TRUE. Credit spreads quantify the risk premium investors demand for taking on credit risk.
This is FALSE. Debt covenants are legally binding clauses that borrowers must comply with.
This is TRUE. Higher duration means greater price sensitivity to interest rate movements.
This is TRUE. Debt provides funding while preserving shareholder control since no new equity is issued.
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