FINC400 quiz 7

FINC400 quiz 7

Question 1 of 25

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4.0 Points

A bond’s rating can depend on all of the following except

A.the corporation’s debt-equity ratio.

B.the corporation’s size.

C.the ability of the firm to make interest payments.

D.the coupon rate on the bond.

Question 2 of 25

4.0 Points

The effect of a rights offering on a stockholder is increase his/her wealth. increase his/her wealth only if the new stock is purchased. decrease his/her wealth unless the stock is purchased. decrease his/her wealth if nothing is done.

Question 3 of 25

4.0 Points

Preferred stock dividends are a deductible expense for a corporation.

A. True

B. False

Question 4 of 25

4.0 Points

The costs of bond refunding are the call premium, and the underwriting costs on the old and new bond issue.

A. True

B. False

Question 5 of 25

4.0 Points

A “subordinated debenture”

A.must be transferred with the bond to which it is attached. used mainly by railroad companies and usually specifies equipment as collateral.

C.entitles the bondholder to purchase shares of common stock at a specific price. an unsecured bond with an inferior claim on assets in the event of liquidation.

Question 6 of 25

4.0 Points

Stockholders always have preemptive rights when new issues of stock are offered.

A. True

B. False

Question 7 of 25

4.0 Points

Debentures are commonly issued by small companies.

A. True

B. False

Question 8 of 25

4.0 Points

The subscription rate is generally _______ than the rights-on price and _______ than the ex-rights price.

A.higher, higher

B.higher, lower

C.lower, higher

D.lower, lower

Question 9 of 25

4.0 Points

Bondholders never have any control over the actions of a firm.

A. True

B. False

Question 10 of 25

4.0 Points

The increasing sophistication of individual investors has decreased the role of institutional investors in the stock market.

A. True

B. False

Question 11 of 25

4.0 Points

Stock purchased through a rights offering may carry lower margin requirements.

A. True

B. False

Question 12 of 25

4.0 Points

The term debenture refers to

A.long-term, secured debt.

B.long-term, unsecured debt.

C.the after-acquired property clause.

D.a 100-page document covering the specific terms of the offering.

Question 13 of 25

4.0 Points

The difference between the initial bond price and the maturity value is amortized for tax purposes over the life of a zero-coupon bond.

A. True

B. False

Question 14 of 25

4.0 Points

With regard to interest rates and bond prices it can be said that

A.a 1% change in interest rates will cause a greater change in long-term bond prices than short-term prices.

B.a 1% change in interest rates will cause a greater change in short-term bond prices than long-term prices.

C.long-term rates are more volatile than short-term rates.

D.a decrease in interest rates will cause bond prices to fall.

Question 15 of 25

4.0 Points

An increasing proportion of shares in the U.S. are owned by:

A.individual investors.

B.corporations (Treasury Stock).



Question 16 of 25

4.0 Points

Under normal operating conditions, the board of directors is elected by

A.the common stockholders.

B.the preferred stockholders.

C.the bondholders.

D.two of the above.

Question 17 of 25

4.0 Points

If a corporate charter includes a provision for preemptive rights, the stockholders

A.must sell their stock to the company.

B.get first option to buy additional issues of common stock.

C.may purchase existing treasury stock.

D.cannot utilize cumulative voting procedures.

Question 18 of 25

4.0 Points

The higher the bond rating

A.the higher the interest rate on a bond.

B.the lower the interest rate on a bond.

C.the higher the call premium.

D.the lower the call premium

Question 19 of 25

4.0 Points

The purpose of cumulative voting is maintain majority control of the board of directors. allow minority stockholders the possibility of a voice on the board of directors. obstruct unfriendly mergers and takeover efforts. prevent the dilution of common stock through pre-emptive rights offerings.

Question 20 of 25

4.0 Points

The weighted average cost of capital is generally used as the discount rate in a bond-refunding decision.

A. True

B. False

Question 21 of 25

4.0 Points

Preferred stock is the least used of all long-term securities because

A.investors can get higher returns after taxes in other investments.

B.preferred dividends are considered regular (fixed) obligations but are not tax-deductible.

C.flotation costs are extremely high compared to bonds.

D.all of these.

Question 22 of 25

4.0 Points

Which of the following is not a form of yield on a bond? rate (nominal yield)

B.current yield

C.dividend yield

D.yield to maturity

Question 23 of 25

4.0 Points

There are a number of possible advantages to a rights offering:

A.current shareholders are protected against dilution.

B.the firm has a built-in market of knowledgeable investors.

C.distribution costs are lower than a public offering.

D.all of these.

Question 24 of 25

4.0 Points

The yield to maturity is the internal rate of return on a bond.

A. True

B. False

Question 25 of 25

4.0 Points

When a company defaults on a secured debt, it is rare for the secured asset to be sold and the proceeds distributed to the debtor.

A. True

B. False

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