4) A trustee is a paid party representing the bond issuer in the bond indenture. Answer: TRUE or FALSE 11) Restrictive covenants place operating and financial constraints on the borrower. Answer: TRUE or FALSE 14) Longer the maturity, higher is the cost of a bond. Answer: TRUE Or FALSE 16 The legal contract setting forth the terms and provisions of a corporate bond is a(n) A) indenture B) debenture C) loan document D) promissory note 18) A(n) _____ is a paid individual, corporation, or a commercial bank trust department that acts as a third party to a bond indenture. A' trustee B) investment banker C) bond issuer D' bond rating agency

22)The purpose of the debt covenant that requires maintaining a minimum level of net working capital is to _______. A, protect the lender by controlling the risk and marketability of the borrower's security investment alternatives B) limit the amount of fixed-payment obligations C) ensure a cash shortage does not cause an inability to meet current obligations D. limit the annual cash dividends paid by the firm

30) The cost of a long-term debt generally ______ that of a short-term debt. A) is less than B) is equal to C) is greater than D) is less than or equal to

8) A conversion feature in a bond allows bondholders to change each bond into a stated number of shares of common stock. Answer: TRUE or FALSE

14) High-quality (high-rated) bonds provide lower returns than lower-quality (low-rated) bonds. Answer: TRUE or FALSE 31) The ______ feature permits the issuer to repurchase bonds at a stated price prior to maturity. A) call B) conversion C) put D) swap 33) ______allow bondholders to purchase a certain number of shares of the firm's common stock at a specified price over a certain period of time. A) Call options B) Stock purchase warrants C) Debentures D) Put options

36) A $1,000, 8% bond sells for 980. $1,000 is called the _____________. A) current value B) market value C) par value D) auction value

1) Unlike creditors, equity holders are owners of the firm. Answer: TRUE or FALSE

4) The tax deductibility of interest lowers the cost of debt financing, thereby causing the cost of debt financing to be lower than the cost of equity financing. Answer: TRUE or FALSE

6) Dividends paid to stockholders is tax deductible. Answer: TRUE or FALSE

8) Which of'the following is a difference between common stock and bonds? A Bondholders have a voice in management; common stockholders do not. B' Bondholders have a senior claim on assets and income relative to stockholders. C' Stocks have a stated maturity but bonds do not. D Dividend paid to stockholders is tax-deductible but interest paid to bondholders are not.

11) If bankruptcy were to occur, would have the first claim on assets. A preferred stockholders B' unsecured creditors C' equity stockholders D secured creditors

2) Common stockholders are often referred to as residual claimants. Answer: TRUE or FALSE

7) The: number of outstanding shares of common stock is always greater than or equal to the number of authorized shares of common stock. Answer: TRUE or FALSE

12)In the case of liquidation, bondholders are paid first, followed by preferred stockholders, followed by common stockholders. Answer: TRUE or FALSE

16)Cumulative preferred stocks are preferred stocks for which all passed (unpaid) dividends in at'rears must be paid along with the current dividend prior to the payment of dividends to common stockholders. Answer: TRUE or FALSE

20) A call feature is a feature that allows preferred stockholders to change each share into a stated number of shares of common stock. Answer: TRUE or FALSE