Question 2

1 point possible (graded)

When companies use debt, what is a possible use and purpose of debt funding?

A. Finance plant, property and equipment

B. Fund working capital and current operations

C. Finance acquisitions of other companies

D. All of the above

Question 6

1 point possible (graded)

Exposure at default in deriving Expected Loss is:

The expected outstandings of loan or debt exposure at the time of default

The outstandings of loan or debt exposure when documents are signed at the beginning of the term

The outstandings of loan or debt exposure after the first year of a term loan

The debt capacity of the borrower at the beginning of a term loan

Question 7

1 point possible (graded)

The Loss Given Default on credit risks and exposures can be reduced by:

Increasing the interest rate applied to the transaction

Increasing the tenor applicable to the exposure

Requiring more collateral and ensuring its market value exceeds exposures

Agreeing to swap the debt for an equity position in the company

Question 8

1 point possible (graded)

What procedure or step below would not reduce the Loss-Given-Default on a debt transaction:

Refinance the outstanding loan under the same terms

Request more collateral

Request a guarantee from a strong parent or sponsor

Purchase a CDS derivative with the borrower as the reference asset

Question 9

1 point possible (graded)

Which agency credit rating below would logically imply the highest probability of default for the borrower?

C-

CC

CC+

BBB-

Question 10

1 point possible (graded)

Which tenor category below would logically lead to the highest probability of default for a given credit rating?

A. 1-year tenor

B. 3-year tenor

C. 10-year tenor

D.4-year tenor

Question 11

1 point possible (graded)

Which credit exposure below would logically result in the lowest probability of default for the borrower?

A. A-rated exposure, 1-year tenor

B. BB-rated exposure, 2-year tenor

C. BB+-rated exposure, 3-year tenor

D. C-rated exposure, 1- year tenor

Question 12

1 point possible (graded)

Which transaction below would likely result in the highest loan pricing or debt yield?

A. AAA-rated exposure, unsecured, 1-year tenor

B. CCC+-rated exposure, unsecured, 3-year tenor

C. A-rated exposure, secured, 2-year tenor

D. BBB+-rated exposure, secured, 2-year tenor

Question 13

1 point possible (graded)

An upgrade in the credit rating from BBB+ to A- will have which likely impact on the credit spreads and bond yields for the issuing company?

A. Credit spreads will likely increase

B. Bonds issued by the company will decline in value

C. Credit spreads will likely decrease, while bond prices will likely increase

D. Loan pricing for new borrowings will likely increase

Question 14

1 point possible (graded)

Which class of investors/lenders will have the most senior claim on the company's cash flows and operating assets in the event of liquidation or bankruptcy?

A. Convertible preferred shareholders

B. Common shareholders

C. Senior secured lenders

D. Unsecured subordinated debt-holders

Question 15

1 point possible (graded)

In project finance, in what phase will there likely not be positive cash flow from operations?

A. Ramp-up and construction phase

B. Operating phase

C. Wind-down phase

D. Liquidation phase

Question 16

1 point possible (graded)

In a project financing, during the ramp-up, construction phase, operating cash flows:

A. Will reach peaks for the tenor of the project

B. Will fluctuate, but remain positive during those year

C. Will likely be negative, because the project has not launched profitable operations

D. Will grow at an approximate rate of 10% per year

Question 17

1 point possible (graded)

In a project financing, in the liquidation or wind-down proceeds, what would be the primary source of generating cash?

A. Proceeds from new bank debt

B. Proceeds from new investments from equity investors

C. Proceeds from the sale of assets and potentially the operation to third-party buyers

D. Proceeds from the sale of equity to debt investors

Question 18

1 point possible (graded)

In the business-industry Porter Model, if a company has bargaining leverage or influence with its suppliers or the supply chain, what may be the likely result?

A. Such leverage may lead to lower supply costs or costs of goods sold

B. Such leverage may lead suppliers to increase costs

C. Such leverage may encourage suppliers to enhance their relationship with the company

D. Suppliers will likely be indifferent to such influence or leverage

1 point possible (graded)

In the Porter Model, barriers to entry in the industry or for the business model can ultimately lead to:

A. Reduced competition among top players in the industry

B. Higher profit margins for large companies in the industry

C. Higher prices for products and services offered in the industry

D. All of the above

Question 20

1 point possible (graded)

In the Porter Model, the risk of new-product substitutes is that they could lead to:

A. Reduction in demand for the company's product(s) and, therefore, reduced profit margins

B. Increase in demand for the company's products, as the old customer base remains loyal to the company

C. An immediate shut-down of the company

D. The company responding by raising prices on inventory by at least 25%

Question 21

1 point possible (graded)

Companies in the new-venture, start-up phase in a new industry are more likely to rely on which form of long-term financing?

A. Long-term, unsecured bank debt

B. Long-term public corporate-bond issues

C. Short-term commercial paper

D. Equity capital

Question 22

1 point possible (graded)

Companies in peaking, mature phases can likely access funding in public markets because:

A. Securities regulation in most countries guarantee companies that are at least 10 years old to be able to issue public debt or equity

B. They have resources to prepare documentation and registration in timely fashion

C. They have track records and detailed financial histories that permit public investors to get comfortable with financial condition, performance and debt-service ability

D. They have spent a significant amount in advertising, promotion, and marketing for investors to gain sufficient awareness

1 point possible (graded)

Companies in rapid-growth stages require long-term financing (debt and/or equity) primarily to:

A. Support growing levels of fixed assets, inventory and receivables

B. Attract and compensate new, experienced managers

C. Initiate a substantial dividend-payment program for the earliest investors

D. Reduce the amount of accrued expenses on the balance sheet

Question 24

1 point possible (graded)

Companies operating in late, declining stages in an industry cycle can expect:

A. Continuing growth in revenues above 20% per annum

B. Continuing and easy access to debt markets to support high growth

C. Low growth or declining revenues as market opportunities decline

D. Profit margins to improve because of increased demand for products in the industry

Question 25

1 point possible (graded)

In the asset-conversion cycle, which segment of the cycle requires the most amount of days?

A. Accounts payable: the average amount of days to pay down suppliers

B. The number of days in each segment depends on the business model, company operations and the industry

C. Inventory: the average amount of days inventory is assembled, manufactured, and/or held before it is sold

D. Accounts receivable: the average amount of days to collect cash from customers after inventory is sold

Question 26

1 point possible (graded)

If the Loss-given-default for given credit risk or exposure = 40%, that implies the recovery rate is expected to be:

A. 60%

B. 65%

C. 55%

D. 10%

Question 27

1 point possible (graded)

Which rating below is classified as investment grade?

A. CCC+

B. C-

C. BB-

D.A-

Question 28

1 point possible (graded)

Which item below would not be classified as "off-balance-sheet" risk?

A.Contractual commitments to purchase an asset

B.Contractual commitment to sell an asset

C.Deferred-tax liability

D.Contingent liability from litigation