Part 6 (ch24) Questions T/F & Multiple Choice

Mark T (True) or F (False) in each of the following sentences.

1 Corporate debt is typically considered a risk-free investment.

2 Sovereign debt is a type of corporate debt.

3 Private placement is a method of raising capital that involves selling securities to the general public.

4 Collateralized Debt Obligations (CDOs) are financial instruments that are typically backed by a diversified pool of assets, such as mortgages and loans.

5 Syndicated bank loans are typically provided by a single bank to a borrower.

6 In a perfect capital market, a firm’s market capitalization would change when it borrows to repurchase shares.

7 Callable bonds give the issuer the right to redeem the bonds before their maturity date, while non-callable bonds cannot be redeemed by the issuer before maturity.

8 Callable bonds usually offer a lower yield than non-callable bonds, which makes them less attractive to investors.

9 Bond covenants are legally binding agreements that set specific terms and conditions for bond issuers and bondholders, but they cannot include restrictions on the issuer’s activities.

10 Junk bonds typically offer lower yields compared to investment-grade bonds.

11 Commercial paper is a short-term debt instrument typically issued by large corporations to meet short-term obligations.

12 Convertible bonds give bondholders the option to convert their bonds into a predetermined number of the issuer’s common shares.

13 Credit ratings provided by agencies like Moody’s and Standard & Poor’s assess the creditworthiness of corporate debt issuers.

14 Asset-backed securities (ABS) are financial instruments backed by pools of assets such as credit card receivables, auto loans, or mortgages.

15 The debt-to-equity ratio measures a company’s financial leverage by comparing its total debt to its total equity.

16 Bond indenture is a legal document outlining the terms and conditions of a bond issue, including its interest rate, maturity date, and any special features.

17 Zero-coupon bonds pay periodic interest payments to bondholders.

18 Treasury bills are long-term debt securities issued by the federal government with maturities typically ranging from 20 to 30 years.