Module 6: True (T) or False (F) Questions
Last updated: 10/10/2025 14:00
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.
This is TRUE. Mortgage bonds are backed by real estate pledged as collateral.
This is FALSE. Debentures are unsecured debt and give claims only to unpledged assets.
This is TRUE. Notes are unsecured debt instruments with shorter maturities than debentures.
This is FALSE. Bearer bonds are unregistered—whoever holds the certificate receives the payments.
This is TRUE. Eurobonds are issued outside the jurisdiction of any single nation and denominated in a foreign currency.
This is FALSE. Private debt avoids registration costs but is less liquid than public debt.
This is TRUE. Syndicated loans pool funds from multiple banks to spread risk and financing capacity.
This is FALSE. The indenture is a contract between the issuer and a trust company representing bondholders.
This is TRUE. Subordinated debt holders are paid only after senior debt is fully satisfied.
This is FALSE. Domestic bonds are issued by local entities, denominated in local currency, and traded in the local market.
This is FALSE. A BBB– rating is the lowest tier of investment-grade bonds, not speculative-grade. Bonds rated below BB+ are considered junk.
This is FALSE. Treasury bills are zero-coupon discount bonds with maturities up to 26 weeks.
This is TRUE. ABS are created by packaging assets such as loans or receivables whose payments back the security.
This is FALSE. The process is known as asset securitization.
This is TRUE. MBS are ABS backed specifically by pools of residential mortgages.
This is FALSE. CDOs are often backed by tranches of other asset-backed or mortgage-backed securities.
This is TRUE. Sovereign debt includes instruments like U.S. Treasury securities and Brazilian government bonds.
This is FALSE. Municipal bonds are not common in Brazil, where local governments rarely issue debt to the public.
This is TRUE. TIPS are inflation-indexed bonds whose principal and coupon payments rise with CPI increases.
This is FALSE. Securitization increases liquidity by transforming illiquid assets into tradable securities.
This is TRUE. Covenants limit managerial behavior to reduce the risk faced by bondholders.
This is FALSE. Stronger covenants generally decrease the cost of borrowing because they reduce default risk.
This is TRUE. Negative covenants restrict actions that could weaken the firm’s ability to repay debt.
This is FALSE. Issuers may retire bonds early through repurchase, tender offers, or call provisions.
This is TRUE. When rates drop, issuers can call bonds and refinance at lower costs.
This is FALSE. Callable bonds are less attractive due to call risk, so they trade at lower prices and higher yields.
This is TRUE. Sinking funds help issuers gradually repay bonds over time.
This is FALSE. Convertible bonds are generally more valuable because they include an option to convert into equity.
This is TRUE. The conversion ratio specifies how many shares are obtained per bond converted.
This is FALSE. Higher-rated bonds have lower default risk and offer lower yields.
This is TRUE. Ratings are assessments of default risk made by agencies like Moody’s or S&P.
This is FALSE. Investment-grade bonds have lower default risk and lower yields.
This is TRUE. Bond prices move inversely to market interest rates.
This is FALSE. The YTM equals the coupon rate only if the bond is priced exactly at par.
This is TRUE. Tesouro Direto is a Brazilian program that enables retail investors to buy and sell federal government bonds directly over the internet, promoting financial inclusion and education.
This is FALSE. Tesouro Direto offers different types of bonds — such as Tesouro Selic, Tesouro IPCA+, and Tesouro Prefixado — whose returns depend on interest rates or inflation dynamics.
This is TRUE. Convertible bonds combine features of debt and equity, offering both income and potential capital gains.
This is FALSE. Ratings are reviewed regularly and adjusted as a firm’s risk profile changes.
This is TRUE. Lower ratings raise perceived default risk, leading investors to demand higher yields.
This is FALSE. Higher-rated bonds have lower yields because they carry less risk.
This is TRUE. Tesouro Direto allows early redemption through daily buyback by the Treasury, but the sale price reflects current market interest rates — which may result in gains or losses before maturity.
This is FALSE. Callable bonds are repurchased at the predetermined call price, not the market price.
This is TRUE. When interest rates decline, the fixed coupon of Tesouro Prefixado becomes more attractive, leading to an increase in its market price.
This is FALSE. Tesouro Direto includes bonds with different structures: Tesouro Prefixado (fixed rate), Tesouro IPCA+ (inflation-linked), and Tesouro Selic (floating rate), each reacting differently to economic conditions.
This is TRUE. Debt claims have legal priority over equity in liquidation proceedings.
This is FALSE. Coupon rates are fixed at issuance; market yields adjust via bond price changes.
This is TRUE. BBB is the lowest investment-grade rating; BB is the first speculative or “junk” category.
This is FALSE. Positive covenants require the firm to take specific actions, such as maintaining liquidity ratios.
This is TRUE. Agencies monitor performance and can upgrade or downgrade ratings accordingly.
This is FALSE. Many forms of private debt are not publicly traded and are exempt from registration.
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