Question : 11.A balloon payment is a.payment made circus debt. b.a large front-end debt : 1325741

 

 

11.A balloon payment is

a.payment made on circus debt.

b.a large front-end debt payment, followed by smaller payments.

c.a large lump-sum payment at maturity of a debt.

d.none of the above.

 

 

 

12.The yield curve’s typical shape suggests

a.short term debt will carry higher interest rates than long term debt.

b.short term debt will carry about the same rates as long term debt.

c.short term debt will carry lower rates than long term debt.

d.nothing about the differences in rates due to maturity difference.

 

 

 

13.Suppose a firm is asked to pledge collateral for a term loan. Which of the following is likely to be least acceptable to the lender?

a.a rare book collection owned by the company.

b.the firm’s inventory of industrial chemicals.

c.the firm’s real estate holding.

d.securities held by the firm for investment.

 

 

 

14.How do project finance (PF) loans differ from other syndicated loans?

a.PF loans are guaranteed by the borrower, while other syndicated loans are not.

b.PF loans are issued to special stand-alone companies whose sole purpose is the construction and operation of a single project.

c.PF loans are issued in multiple currencies, while most other syndicated loans are issued in a single currency.

d.All of the above are true.

 

 

 

15.The feature in a bond indenture that requires systematic retirement of the bond issue is a

a.planned call provision.

b.sinking fund provision.

c.forced conversion provision.

d.mandated redemption provision.

 

 

 

16.A call feature

a.allows the bondholder to redeem the bond prior to maturity.

b.allows the bond issuer to redeem the bond prior to maturity.

c.allows the bondholder to increase the coupon rate on the bond at specific points in time over the bond’s life.

d.forces the bond issuer to buy back the bond prior to maturity at the bondholder’s discretion.

 

 

 

17.Callable bonds may not be called immediately after a rate decrease because

a.the call price if often at a premium above par value.

b.the call provision is often deferred for several years after the bond’s issue.

c.recalling the old bonds and issuing new ones involves non-trivial flotation costs.

d.all of the above.

 

 

 

18.All else equal, the higher the call premium,

a.the smaller the drop in rates necessary for a call to be beneficial.

b.the larger the drop in rates necessary for a call to be beneficial.

c.the more likely any rate drop will lead to a call.

d.none of the above; the call premium does not affect the call decision.

 

 

 

19.Wuzzy, Inc. is evaluating the acquisition of a new car for deliveries. Automobile leases are

a.typically operating leases.

b.typically financial (capital) leases.

c.either operating or financial, depending on the firm.

d.not covered by these categories.

 

 

 

20.An important consideration in the lease versus purchase decision is

a.the loss of the depreciation tax shield if leased.

b.the benefit of the lease payment as a tax deduction.

c.the effect on financial structure and future funding needs.

d.all of the above.