Quiz about ÔN THI 2

Question 1

In relation to long-term financing, a fully drawn advance is a:

Accepted Answer

A term loan where the full amount is provided at the start of the loan, usually for a specified purpose.

Answer

a bank loan advanced for a precise period for an unspecified purpose.

Answer

A term loan where the borrower has the option of putting its operating account in deficit up to an agreed limit.

Answer

A term loan where the bank does not pay out the loan until after a specified period.

Question 2

If a company wishes to finance a printing press with a five-year life, it would be advisable to finance it with a/an:

Accepted Answer

fully drawn advance.

Answer

overdraft.

Answer

bank bill.

Answer

commercial paper.

Question 3

If a company wished to structure its financing so it repaid funds borrowed only when a project begins to have positive cash flows, it would choose a/an:

Accepted Answer

deferred payment loan.

Answer

fully drawn advance.

Answer

term loan.

Answer

interest-only loan.

Question 4

Long-term debt can be categorised as financing with an initial maturity:

Accepted Answer

over 1 year.

Answer

over 180 days and less than a year.

Answer

between 1 and 3 years.

Answer

between 3 and 12 years.

Question 5

In relation to long-term financing, an amortised loan involves:

Accepted Answer

periodic equal repayments of interest and principal throughout the term.

Answer

periodic payments principal and interest repaid at maturity.

Answer

periodic interest and principal repayments when positive cash flows begin.

Answer

periodic interest payments and principal repaid at maturity.

Question 6

Term loans where each periodic loan payment consists of interest payments and then the principal is repaid in full at maturity are:

Accepted Answer

interest-only loans.

Answer

fully drawn advances.

Answer

amortised loans.

Answer

credit foncier loans.

Question 7

The fees that represent bank costs in considering loan applications and document preparation are called:

Accepted Answer

establishment fees.

Answer

commitment fees.

Answer

line fees.

Answer

service fees.

Question 8

The fees charged by banks onto the total amount of the loan facility and are normally payable in advance are:

Accepted Answer

establishment fees.

Answer

commitment fees.

Answer

line fees.

Answer

service fees.

Question 9

Compared with an amortised loan, a deferred repayment loan involves:

Accepted Answer

periodic interest and principal repayments when positive cash flows begin.

Answer

periodic interest and principal repayments.

Answer

periodic interest payments and principal repaid at maturity.

Answer

periodic principal payments and interest repaid at maturity.

Question 10

The main longer-term finance provided by financial intermediaries is/are:

Accepted Answer

term loans.

Answer

certificates of deposit.

Answer

commercial paper.

Answer

corporate bonds.

Question 11

________ granted by banks generally have maturities of three to 15 years and are often made to finance capital expenditure such as building construction and the purchase of real estate.

Accepted Answer

Term loans

Answer

Debentures

Answer

Mortgage bonds

Answer

Capital leases

Question 12

A term loan is:

Accepted Answer

when funds are borrowed for a set period.

Answer

a bill issued to finance a specific trade transaction.

Answer

a bill issued to raise funds for general purposes.

Answer

a flexible funding arrangement for companies.

Question 13

Banks usually charge a/an _______ for any portion of a term loan that has not been drawn down.

Accepted Answer

commitment fee

Answer

establishment fee

Answer

service fee

Answer

term fee

Question 14

A bank charge on any part of a loan that has not been fully drawn down by a company is called a/an:

Accepted Answer

commitment fee.

Answer

establishment fee.

Answer

line fee.

Answer

service fee.

Question 15

All of the following affect interest rates charged on term loans except:

Accepted Answer

refinancing risk.

Answer

default risk.

Answer

the maturity.

Answer

the repayment schedule.

Question 16

Which of the following rates serves as a reference interest rate in Australia?

Accepted Answer

BBSW

Answer

LIBOR

Answer

USCP

Answer

SIBOR

Question 17

If the interest rates on shorter term-to-maturity deposits are higher than those of longer term deposits, it is likely that the costs for the longer term financing for a company are:

Accepted Answer

lower.

Answer

higher.

Answer

the same.

Answer

not related.

Question 18

One of the advantages of a prime rate set by a financial institution is that it is less likely to be affected by:

Accepted Answer

changes in the bank bill swap rate.

Answer

short-

Question 19

One of the advantages of a prime rate set by a financial institution is that it is less likely to be affected by:

Accepted Answer

all of the given answers.

Answer

changes in the bank bill swap rate.

Answer

short-term market illiquidity.

Answer

short-term credit fluctuations.

Question 20

A company can borrow from a bank at a margin to the bank's base rate. According to the text, all of the following factors affect this margin except:

Accepted Answer

the loan repayment schedule.

Answer

the credit risk of the company.

Answer

the term of the loan.

Answer

the term structure of interest rates.

Question 21

Compared with a company with a strong financial rating, a company with a weaker rating is likely to be charged:

Accepted Answer

LIBOR plus 50 basis points.

Answer

LIBOR.

Answer

LIBOR plus 10 basis points.

Answer

LIBOR plus 25 basis points.

Question 22

When a lender includes conditions in a loan agreement to protect its loan, these are known as:

Accepted Answer

loan covenants.

Answer

loan agreements.

Answer

loan terms.

Answer

loan actions.

Question 23

When a loan agreement contains actions for a borrowing company to comply with, such as supplying financial statements, these are called:

Accepted Answer

positive covenants.

Answer

accounting ratios.

Answer

negative covenants.

Answer

loan options.

Question 24

Which of the following is NOT usually an example of restrictive debt covenants?

Accepted Answer

Supplying the creditors with annual, audited financial statements

Answer

Limitations on additional borrowing

Answer

Constraints on disposal of non-current assets

Answer

Minimum levels of cash flow

Question 25

Which of the following is NOT an example of negative debt covenants?

Accepted Answer

Supplying creditors with annual audited reports

Answer

Specifying what activities the business can enter into

Answer

Restrictions on amalgamation with other companies

Answer

Limiting annual dividend payments to shareholders

Question 26

Which of the following is NOT an example of a positive debt covenant?

Accepted Answer

The company is restricted from doing mergers and acquisitions.

Answer

The company has to maintain a minimum level of working capital.

Answer

The company has to supply periodic cash flow statements to the lender.

Answer

The company has to supply annual audited statements to the lender.

Question 27

The purpose of debt covenants that require the firm to rank any subsequent borrowing below the original loan is to:

Accepted Answer

protect the lender in their claim over pledged assets in the event of failure.

Answer

limit the amount of fixed-interest payments.

Answer

make sure that any cash restraints do not affect current obligations.

Answer

protect the shareholders' claims over assets.

Question 28

The purpose of debt covenants that ban borrowers from entering into certain types of leases is to:

Accepted Answer

protect the lender in their claim over pledged assets in the event of failure.

Answer

limit the amount of fixed-interest payments.

Answer

prevent the firm from supplying too many cars to employees.

Answer

protect the shareholders' claims over assets.

Question 29

A breach of any specified loan covenant by the borrower generally gives the lender the right to do all of the following, except:

Accepted Answer

insist the company hand over its assets.

Answer

increase the interest rate.

Answer

demand immediate repayment of the loan.

Answer

alter the term of the agreement, such as by reducing the maturity date.

Question 30

A key difference between a positive covenant and a negative covenant is, for a:

Accepted Answer

positive covenant, a company must comply with restrictions on its financial structure.

Answer

negative covenant, a company must maintain a minimum level of working capital.

Answer

negative covenant, a company must provide annual audited financial statements.

Answer

positive covenant, a company must maintain a minimum debt to gross cash flow ratio.

Question 31

Which of the following is a positive loan covenant?

Accepted Answer

All of the given answers

Answer

A minimum working capital ratio

Answer

A maximum gearing ratio

Answer

A maximum level of unsecured debt

Question 32

A ________ is provided to a business by a financial institution and has a maturity of more than one year.

Accepted Answer

term loan

Answer

debenture

Answer

mortgage bond

Answer

zero-coupon bond

Question 33

The type of loan where a company pays periodic interest payments over its term and the principal at maturity to a lender is called:

Accepted Answer

amortised.

Answer

a debit foncier.

Answer

deferred payment.

Answer

interest-only.

Question 34

All of the following financial institutions arrange mortgage finance for companies except:

Accepted Answer

investment banks.

Answer

commercial banks.

Answer

insurance companies.

Answer

building societies.

Question 35

The lender who registers a mortgage as a security for a loan is the:

Accepted Answer

mortgagee.

Answer

mortgagor.

Answer

mortgager.

Answer

mortgage.

Question 36

The lender who registers a mortgage as a security for a loan is the:

Accepted Answer

mortgagee.

Answer

mortgagor.

Answer

mortgager.

Answer

mortgage.

Question 37

The borrower who issues a mortgage with real property as collateral to the bank is the:

Accepted Answer

mortgagor.

Answer

mortgagee.

Answer

mortgager.

Answer

mortgage.

Question 38

A company borrows $75 000 from a bank, to be amortised over five years at 8.5% per annum. The annual instalment is:

Accepted Answer

$12 657.43

Answer

$16 275.00

Answer

$19 032.43

Answer

none of the given answers

Question 39

A company borrows $125 000 from a bank at 7.2% per annum to be amortised over six years. The monthly instalment is:

Accepted Answer

$2143.15

Answer

$1861.11

Answer

$7274.21

Answer

$26 386.61

Question 40

In Australia which of the following long-term debt markets are the largest?

Accepted Answer

The mortgage market

Answer

The corporate bond market

Answer

The unsecured note market

Answer

The leasing market

Question 41

When illiquid assets are transformed into new asset-backed securities, the process is called:

Accepted Answer

securitisation.

Answer

conversion.

Answer

liquidisation.

Answer

transformation.

Question 42

Many years ago, banks:

Accepted Answer

held most loans on their books until they were paid off.

Answer

could make mortgage loans to households but not to businesses.

Answer

could make loans to businesses but not make mortgage loans.

Answer

repackaged and sold most loans to investors.

Question 43

The value of a bond is the present value of the:

Accepted Answer

coupon payments and maturity value.

Answer

dividends and coupon payments.

Answer

dividends and maturity value.

Answer

maturity value.

Question 44

The coupon interest of a bond is calculated based on its _______, and is paid periodically.

Accepted Answer

face value

Answer

market value

Answer

book value

Answer

surrender value

Question 45

Which of the following types of bond generally has the lowest interest rate?

Accepted Answer

Treasury bonds

Answer

Corporate BAA bonds

Answer

Semi-government bonds

Answer

Corporate ABB bonds

Question 46

Corporations and governments use long-term debt financing called:

Accepted Answer

bonds.

Answer

retained earnings.

Answer

shares.

Answer

preferred stock.

Question 47

Bonds are:

Accepted Answer

long-term debt instruments.

Answer

a type of equity financing.

Answer

a short-term financial arrangement with periodic interest payments.

Answer

a debt instrument issued at discount with interest and principal repaid at maturity.

Question 48

Compared with unsecured notes, a debenture can offer:

Accepted Answer

a fixed charge over the issuer's already pledged assets.

Answer

a floating charge over the issuer's unpledged assets.

Answer

less chance of sale before maturity, as they are not usually traded.

Answer

provisions for interest rate changes.

Question 49

An unsecured note differs from a debenture in that it has:

Accepted Answer

no supporting security.

Answer

as security only unpledged assets.

Answer

as security a floating charge over assets.

Answer

as security a fixed charge over assets.

Question 50

A debt security supported or secured by mortgage assets held by a bank is a/an:

Accepted Answer

mortgage bond.

Answer

debenture.

Answer

income bond.

Answer

fixed-charge debenture.

Question 51

All of the following are examples of long-term debt instruments except:

Accepted Answer

promissory notes.

Answer

term loans.

Answer

debentures.

Answer

bonds.

Question 52

In relation to an issue of bonds, the method where the bond offer is made only to institutions that deal regularly in securities is called:

Accepted Answer

private placement.

Answer

public issue.

Answer

family issue.

Answer

institutional issue.

Question 53

A debenture is a/an:

Accepted Answer

bond secured by a charge over the assets of the issuer.

Answer

unsecured bond that only best-name corporate borrowers can issue.

Answer

legal document stating the restrictive covenants on the loan.

Answer

corporate bond with a credit enhancement.

Question 54

A company issues a long-term debt security with specified interest payments and fixed charges over unpledged assets. What type of security has been issued?

Accepted Answer

Debenture

Answer

Subordinated debt

Answer

Unsecured notes

Answer

Commercial mortgage

Question 55

When a company defaults on interest payments for a debenture, the floating charge is said to ______ a fixed charge.

Accepted Answer

crystallise into

Answer

transform into

Answer

originate as

Answer

adjust to

Question 56

In the event of failure for a company that has issued a bond, the highest claims on the company's assets generally comes from:

Accepted Answer

fixed-charge debenture holders.

Answer

floating-charge debenture holders.

Answer

unsecured note holders.

Answer

the shareholders.

Question 57

A holder of ________ has generally no charge over the issuing company's unpledged assets.

Accepted Answer

an unsecured note

Answer

a debenture

Answer

a subordinated debenture

Answer

a floating charge debenture

Question 58

Many securities contain an option that is included as part of a bond or preferred share, which allows the holder to convert the security into a predetermined number of shares. This feature is called a:

Accepted Answer

conversion feature.

Answer

put option.

Answer

repurchase agreement.

Answer

warrant

Question 59

Which type of financial claim is not satisfied until those of the creditors holding certain senior debts have been fully satisfied?

Accepted Answer

Subordinated debentures

Answer

Mortgage bonds

Answer

Unsecured notes

Answer

Deferred interest debentures

Question 60

If a bond investor pays $1030 for an annual coupon bond with a face value of $1000, it follows that:

Accepted Answer

the current market yield is higher than the coupon rate.

Answer

the coupon rate is higher than the current market yield.

Answer

the current market yield and coupon rate are equal.

Answer

not enough information is given to compare the coupon rate and current market yield.

Question 61

Which one of the following statements about bonds is correct?

Accepted Answer

Bond prices vary inversely with interest rates.

Answer

Most bonds pay interest annually.

Answer

The yield on a bond for a bond investor is generally a fixed rate.

Answer

Bond coupon rates vary with interest rates.

Question 62

The ___value of a bond is also called its par value. Bonds with a current price greater than their par value sell at __, while bonds with a current price less than their par value sell at __.

Accepted Answer

face; a premium; a discount

Answer

premium; face value; a discount

Answer

discount; a premium; face value

Answer

premium; a reduction; a discount

Question 63

What happens to the coupon rate of a $100 face value bond that pays $7 coupon annually, if market interest rates change from 8 to 9%? The coupon rate:

Accepted Answer

remains at 7%.

Answer

increases to 8%.

Answer

increases to 9%.

Answer

increases to nearly 9%.

Question 64

The market price of previously issued bonds is often different from face value because:

Accepted Answer

the market rate of interest has altered.

Answer

the coupon rate has altered.

Answer

the maturity date has altered.

Answer

previously issued bonds sell at a discount to new bonds.

ÔN THI 2

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