8. Some bonds have what is called a call provision. What does this mean?

A. In order to redeem the bond, the bondholder must call the issuing company before year-end

B. The bondholder can redeem the bond for one with a higher coupon rate

C. The issuing company can force a redemption if they feel they can benefit by a lower interest rate environment

D. The bonds of the issuing company have been downgraded forcing the broker to call all bondholders directly and make them aware of the change.

9. Most bonds or loans often come with covenants. This term is related to financial requirements that the issuing company must meet, or the lender can demand immediate payment. What are some of the common benchmarks used as covenants?

A. Merger Restrictions and Debt/Equity ratio

B. AR collection period and turnover

C. Dupont ratio and gross margin return on inventory

D. LIBOR and prime rate

10. Debt can come in a variety of forms including lines of credit, term loans, bonds, etc. What is the name of the financial instrument that starts off as debt but can lead to an equity stake in the company?

A. Callable bond

B. Reversable bond

C. Convertible bond

D. Floating rate bond

11. When a corporation needs to borrow money, it is very common that they want to use the available funds for working capital purposes. As noted above, there are always covenants written into the agreement to monitor the financial health of company. Furthermore, this kind of loan agreement often includes a revolver clause. What does this mean?

A. The borrower is encouraged to shoot himself if he cannot pay back the debt.

B. The related covenants are changed regularly based on the stock price

C. The line of credit must be renewed (and re-approved) every few years.

D. The outstanding balance on the line of credit can be converted to an equity stake.

12. Many loans are structured with a floating rate. This means that the interest rate on the debt is pegged to some common interest rate and readjusted periodically as that benchmark moves. A couple of the most common benchmarks are LIBOR and:

A. Prime rate

B. Unemployment rate

C. Dow Jones Industrial average

D. Federal Funds Rate

13. What does the term, subordinated debt, mean?

1. The related obligation can be deferred and paid later, such as year-end.

2. The lender would be in line behind the shareholders in the event of a bankruptcy

3. Is due and payable ONLY if the primary lender is paid.

4. The lender is second in line behind secured debt

14. When a product is leased, such that the lessee eventually owns the product that is called a/an:

A. Operating lease

B. Financing lease

C. Sale and leaseback

D. Equity lease