CHAPTER 7: DEBT MANAGEMENT

1. 1. Which type of debt is typically issued without collateral and is used to cover short-term working capital needs?

• 1. A. Asset-backed Commercial Paper (ABCP)  

• B. Commercial Paper  

• 1. C. Factoring  

• D. Line of Credit  

2. Which of the following financing methods involves a company selling its receivables to a finance firm in exchange for immediate cash?

•    A. Promissory Note  

  
  

•    B. Factoring  

  
  

•    C. Lease  

  
  

•    D. Certificate of Deposit  

  
  

3. 3. What is a type of bond that is issued with no collateral?

• A. Collateral Trust Bond

  
  

• B. Convertible Bond

  
  

• C. Floorless Bond

  
  

• D. Debenture

  
  

1. 4. Who provides information to investors regarding bond and debt instrument issuers?

• A. Economic Development Authority Loans

  
  

• B. Mortgage Bond

  
  

• C. Credit-Rating Agencies

  
  

• D. Bridge Loans

  
  

5. 5. What is the only acceptable method for writing off the difference between the market and stated rate of interest for bonds?

• A. Straight-line Method

• B.  Effective Interest Method
  

• Compound Interest Method

• D. Declining Balance Method

6. 6. What is attached to a company's bonds to make them more attractive to investors, giving the right to buy a specific number of shares at a set price for a given time interval?

• A. Option

• B. Debenture

• C. Warrant

• D. Convertible feature

7. 7. The policy prevents management from extinguishing debt early if the primary purpose is to report a __________.
   

•  A. Gain or Loss

•  B. Revenue

•  C. Discount

•  D. Liability

8. 8. Debt sinking funds must be fully funded on designated __________ to avoid last-minute funding challenges.
   

• 8. A. Contracts
     

• 8. B. Dates
     

• 8. C. Audits
     

• 8. D. Transactions

9. 9. Which of the following best describes a discount bond?

• A. A bond that is issued or trading at a price higher than its par value.

• B. A bond that is issued or trading at a price lower than its par value.

• C. A bond that provides no interest payments until maturity.

• D. A bond with a coupon rate higher than the current market interest rates.

1.  10.  What is the purpose of a sinking fund established in a bond agreement?

• A.   To accumulate funds for general business expenses

  
  

• B. To gradually repurchase bonds on a predetermined schedule and avoid a large repayment at maturity

• C. To increase the interest rate on the bonds over time

• D. To provide a secondary market for bond trading