Quiz on Long Term Financing - Bonds

What is the nominal value of a bond?

• The rate of return of the bond

• The amount the issuer agrees to repay at maturity

• The time until the bond matures

• The interest rate paid to bondholders

What does the coupon rate determine?

• The risk level of the bond

• The actual interest received by the bondholder

• The principal amount of the bond

• The maturity date of the bond

What is meant by 'terms to maturity'?

• The number of years until the bond matures

• The total interest paid over the life of the bond

• The market value of the bond

• The amount of money invested in the bond

What is yield-to-maturity?

• The fixed interest rate of the bond

• The promised compounded rate of return on a bond

• The time remaining until the bond matures

• The total amount paid to bondholders

What does a call provision allow the issuer to do?

• Increase the coupon rate

• Issue more bonds

• Redeem the bonds before maturity

• Change the terms of the bond

What is a sinking fund?

• A reserve for bondholder compensation

• A type of bond with no interest

• Money set aside for debt repayment

• A fund for purchasing new bonds

What is one advantage of bonds for the issuing firm?

• Restriction and laws to comply

• Tax deduction of interest payments

• No obligation to repay the principal

• Increased risk of bankruptcy

What is a disadvantage of bonds for investors?

• Fixed interest payments during good earnings time

• Higher returns during inflation

• Ownership in the issuing firm

• Guaranteed capital gains

What characterizes government bonds?

• Issued by corporations

• Denominated in foreign currency

• Pay no interest

• Considered risk-free with long maturities

What are junk bonds?

• Bonds with high credit ratings

• Bonds issued by the government

• Bonds that pay no interest

• Low-rated, high-yielding corporate debt