Financial Management - Study Mode

[#241] If market interest rate rises above coupon rate then bond will be sold
Correct Answer

(C) below its par value

Explanation

Solution: If market interest rate rises above coupon rate then bond will be sold below its par value. Once a bond is issued the issuing corporation must pay to the bondholders the bond's stated interest for the life of the bond.

[#242] Bonds that can be converted into shares of common stock are classified as
Correct Answer

(A) convertible bonds

Explanation

Solution: Bonds that can be converted into shares of common stock are classified as convertible bonds. A convertible bond is a fixed-income debt security that yields interest payments, but can be converted into a predetermined number of common stock or equity shares.

[#243] Type of bonds that are issued by foreign governments or foreign corporations are classified as
Correct Answer

(C) foreign bonds

Explanation

Solution: Type of bonds that are issued by foreign governments or foreign corporations are classified as foreign bonds. A foreign bond is a bond issued in a domestic market by a foreign entity in the domestic market's currency as a means of raising capital.

[#244] Specific day at which bond value is repaid can be considered as
Correct Answer

(D) maturity date

Explanation

Solution: Specific day at which bond value is repaid can be considered as maturity date. The maturity date is the date on which the principal amount of a note, draft, acceptance bond or other debt instrument becomes due.

[#245] A usage of proceeds of new issue to retire issue with high-rate is classified as
Correct Answer

(A) refunding operation

Explanation

Solution: A usage of proceeds of new issue to retire issue with high-rate is classified as refunding operation. Refunding is the process of retiring or redeeming an outstanding bond issue at maturity by using the proceeds from a new debt issue. The new issue is almost always issued at a lower rate of interest than the refunded issue, ensuring significant reduction in interest expense for the issuer.