Security Test Chapter 4

The formula for finding conversion ratio is: __________/ __________________

True or False: Short-term bonds typically have higher coupon (interest) payments.

• True

• False. Long-term bonds typically pay more interest since investors assume greater default risk.

When interest rates go down, bond prices go ___.

_____________are considered creditors of a company.

The ________________ represents the amount above par that issuers pay to redeem bonds early.

True or False: An issuer will perform a lottery for a full call.

• True

• False. Lotteries are only necessary for partial calls.

True or False: Investors buy zero-coupon bonds for income.

• True

• False. Since zero-coupon bonds don't have semi-annual payments, they aren't suitable for income investors.

True or False: An issuer must call all of its bonds at the same time.

• True

• False. Issuers may call only part of a bond issue back. This is called a partial call.

Zero coupon bonds are purchased at a ______ and mature at ______.

A corporation that issues convertible bonds is borrowing money at a ____ rate.