Financial Management - Study Mode
[#611] Payment divided by par value is classified as
Correct Answer
(B) coupon payment
Explanation
Solution: Payment divided by par value is classified as coupon payment. A coupon payment on a bond is the annual interest payment that the bondholder receives from the bond's issue date until it matures.
[#612] An official entity that represents bondholders and ensures stated rules in indenture is classified as
Correct Answer
(A) trustee
Explanation
Solution: An official entity that represents bondholders and ensures stated rules in indenture is classified as trustee. A trustee is a person or firm that holds and administers property or assets for the benefit of a third party. A trustee may be appointed for a wide variety of purposes, such as in the case of bankruptcy, for a charity, for a trust fund, or for certain types of retirement plans or pensions.
[#613] An annual interest payment divided by current price of bond is considered as
Correct Answer
(A) current yield
Explanation
Solution: An annual interest payment divided by current price of bond is considered as current yield. Current yield is an investment's annual income (interest or dividends) divided by the current price of the security. This measure examines the current price of a bond, rather than looking at its face value.
[#614] If coupon rate is more than current rate of interest then bond will be sold
Correct Answer
(A) More than its par value
Explanation
Solution: A bond's interest rate is related to the current prevailing interest rates and the perceived risk of the issuer. When interest rates are less than the coupon rate, the bond can be sold at a premium (higher than the face value). When current interest rates are greater than a bond's coupon rate, the bond will sell below its face value at a discount.
[#615] Call provision practiced by company which states that call price will be paid is classified as
Correct Answer
(C) make-whole call provision
Explanation
Solution: Call provision practiced by company which states that call price will be paid is classified as make-whole call provision. A make whole call (provision) is a type of call provision on a bond allowing the borrower to pay off remaining debt early.