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Long Term Securities
Long Term Securities MCQs
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The best advantage of a zero-coupon bond to the issuer is that the
Bond requires a low issuance cost.
Bond requires no interest income calculation to the holder or issuer until maturity.
Interest can be amortized annually by the APR method and need not be shown as an interest expense to the issuer.
Interest can be amortized annually on a straight-line basis but is a noncash outlay.
?
On January 1, Evangel Company issued 9% bonds in the face amount of $100,000, which Fact Pattern:sulting in a bond discount of $3,793. mature in 5 yea...
$8,659
$9,000
$9,621
$10,000
?
A premium on bonds payable arises when
The semiannual bond interest becomes due.
The prevailing interest rate after the bond issuance falls below the nominal rate of the bonds.
The amount received from sale of the bonds at issuance exceeds the face value of the bonds.
The cost of issuing the bonds is capitalized.
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On January 1, Evangel Company issued 9% bonds in the face amount of $100,000, which mature in 5 years. The bonds were issued for $96,207 to yield 10%...
$621
$2,452
$3,172
$3,793
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On January 1, Evangel Company issued 9% bonds in the face amount of $100,000, which ct Pattern:Famature in 5 years. The bonds were issued for $96,207 ...
$94,866
$95,586
$96,828
$97,548
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On January 1, Evangel Company issued 9% bonds in the face amount of $100,000, which ct Pattern:Famature in 5 years. The bonds were issued for $96,207 ...
$8,659
$9,000
$9,621
$10,000
?
On January 1, bonds with a face amount of $200,000, an 8% annual effective yield, and a 7% annual coupon rate were sold by Thomas Dynamics, Inc., for...
$7,000
$7,200
$14,000
$14,400
?
Debentures are
Income bonds that require interest payments only when earnings permit.
Subordinated debt and rank behind convertible bonds.
Bonds secured by the full faith and credit of the issuing firm.
A form of lease financing similar to equipment trust certificates.
?
Which one of the following characteristics distinguishes income bonds from other bonds?
The bondholder is guaranteed an income over the life of the security
By promising a return to the bondholder, an income bond is junior to preferred and common stock.
Income bonds are junior to subordinated debt but senior to preferred and common stock.
Income bonds pay interest only if the issuing company has earned the interest.
?
Serial bonds are attractive to investors because
All bonds in the issue mature on the same date.
The yield to maturity is the same for all bonds in the issue.
Investors can choose the maturity that suits their financial needs.
The coupon rate on these bonds is adjusted to the maturity date.
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Garner Products is considering a new accounts payable and cash disbursement process, which is projected to add 3 days to the disbursement schedule wit...
$90,000
$180,000
$270,000
$315,000
?
Which of the following investments generally pay the highest return?
Money market accounts.
Treasury bills.
Treasury notes.
Commercial paper.
?
Which one of the following is not a characteristic of a negotiable certificate of deposit? Negotiable certificates of deposit
Have a secondary market for investors.
Are regulated by the Federal Reserve System.
Are usually sold in denominations of a minimum of $100,000.
Have yields considerably greater that bankers’ acceptances and commercial paper.
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Which of the following statements is correct when comparing bond-financing alternatives?
A bond with a call provision typically has a lower yield to maturity than a similar bond without a call provision.
A convertible bond must be converted to common stock prior to its maturity.
A call provision is generally considered detrimental to the investor.
A call premium requires the investor to pay an amount greater than par at the time of purchase.
?
Which of the following are characteristics of Euro bonds?
Are always denominated in Eurodollars.
Are always sold in some country other than the one in whose currency the bond is denominated.
Are sold outside the country of the borrower but are denominated in the currency of the county in which the issue is sold.
Are generally issued as registered bonds.
?
At the inception of an operating lease how should the leased asset be accounted for on the lessee financial statements?
The present value of the future lease payments is recorded as an asset on the balance sheet.
The total amount of the lease payments is recorded as an asset on the balance sheet.
An asset is not recorded. The lease payments are expensed as rent as they are incurred.
The future value of the lease payments is recorded as an asset on the balance sheet.
?
Capital and operating leases differ in that the lessee
Obtains use of the asset only under a capital lease.
Is using the lease as a source of financing only under an operating lease.
Receives title to the asset in a capital lease.
Capitalizes the net investment in the lease.
?
Which of the following is an advantage of debt financing?
Interest and principal obligations must be paid regardless of the economic position of the firm.
Debt agreements contain covenants.
The obligation is generally fixed in terms of interest and principal payments.
Excessive debt increases the risk of equity holders and therefore depresses share prices.
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All of the following are advantages of debt financing except
Interest is tax deductible.
The use of debt will assist in lowering the firm’s cost of capital.
In periods of inflation, debt is paid back with dollars that are worth less than the ones borrowed.
The acquisition of debt decreases stockholders’ risk.
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If an investor is concerned about interest rate risk, the investor should consider investing in
Serial bonds.
Sinking fund bonds.
Convertible bonds.
Floating rate bonds.
?
Bonds in which the principal amount is paid as a series of installments over the life of the bond issue are called
Serial bonds.
Sinking fund bonds.
Convertible bonds.
Callable bonds.
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Wilson Corporation issued bonds two years ago. If the _______ interest rate _______, the market value of the bond will decrease.
Coupon; increases.
Coupon; decreases.
Market; increases.
Market; decreases.
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DQZ Telecom is considering a project for the coming year that will cost $50 million. DQZ plans to use the following combination of debt and equity t...
11.80%
8.08%
10.00%
7.92%
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The best reason corporations issue Eurobonds rather than domestic bonds is that
These bonds are denominated in the currency of the country in which they are issued.
These bonds are normally a less expensive form of financing because of the absence of government regulation.
Foreign buyers more readily accept the issues of both large and small US corporations than do domestic investors.
Eurobonds carry no foreign exchange risk.
?
Which of the following provisions is generally considered detrimental to the investor?
Conversion.
Redeemable.
Callable.
Serial maturity.
?
Which of the following is not an advantage of leasing as a form of financing?
Up front costs may be less.
The provisions of the agreement may be less stringent than for other debt agreements.
The dollar cost.
The firm may be able to lease the asset when it does not have the credit capacity to purchase the asset.
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Nerco has a bond issue that matures in fifteen years. Recently, the company’s bond rating has gone from B to Baa. How would this affect the market...
Increase.
Decrease.
Remain the same.
The effect cannot be predicted.
?
Watco, Inc. issued $1,000,000 in 8% bonds, maturing in ten years and paying interest semiannually. The bonds were issued at face value. What can yo...
The market rate for this bond was about 8%.
The nominal rate of interest was about 8%.
The coupon rate on the bond includes no premium for credit risk.
The risk-free interest rate is about 6%.
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Watco, Inc. issued $1,000,000 in 8% bonds, maturing in ten years and paying interest semiannually. The bonds were issued at face value. If the mark...
The market value of Watco’s bond will increase.
The market value of Watco’s bond will decrease.
The effect will depend on the change in the LIBOR rate.
The effect cannot be predicted.
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Watco, Inc. issued $1,000,000 in 8% bonds, maturing in ten years and paying interest semiannually. The bonds were issued at face value. Assume that...
8.00%
9.00%
7.56%
8.42%
?
The cash flow expected from a project is Rs. 700, Rs. 1000 and Rs. 1200 in the 1st, 2nd, & 3rd year. The discounting factor @ 10% roi is 1.10, 1.21 ...
3264
3246
2346
2364
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A 10%, 6-years bond, with face value of Rs. 1000 has been purchased by Mr. x for Rs. 900. What is his yield till maturity?
12.47
14.27
11.74
11.27
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A bond with a par-value of Rs. 100 is purchased for 95.92 and it paid a Coupon rate of 5%. Calculate its current yield.
5.12
5.21
5.34
5.43
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Which of the following comes closest to the fair price on a 6-month futures contract on the S&P 500 index given the following information: an index a...
$1,530
$1,545
$1,560
$1,590
?
Which term describes the following relationship between the expected spot price and the price of the commodity futures contract? E(ST) > FT
Roll yield
Contango
Parity
Backwardation
?
Who is the primary regulator of the managed futures industry?
The Securities and Exchange Commission
The Managed Futures Association
The Commodities Futures Trading Commission
?
With respect to commodities futures contracts, what type of margin relates to the fluctuation in the value of an investor’s account?
Initial margin
Linked margin
Variation margin
Maintenance margin
?
Which of the following describes interest rate parity?
The price of commodity futures will adjust such that investors earn the risk free rate of interest.
The future exchange rate between two currencies will be dependent upon the differences in their interest rates.
Interest rates will adjust to changes in inflationary expectations between countries.
Futures prices and spot prices are connected by the difference between the short term and long term interest rate.
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Consider the case of a non-dividend paying financial asset where F > Ser(T-t). How, in this case, can the hedge fund manager earn a profit?
By buying the underlying asset and selling the futures contract
By buying the underlying asset and buying the futures contract
By selling short the underlying asset and buying the futures contract
By selling short the underlying asset and selling the futures contract
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Contango futures markets are said to have an upward sloping price curve. What can explain the shape of the price curve?
The additional risk accepted by the hedger over short periods
The additional risk accepted by the hedger over long periods
The additional risk accepted by the speculator over short periods
The additional risk accepted by the speculator over long periods
?
What is NOT a distinguishing characteristic of the Mount Lucas Management Commodity Index (vis-Ã -vis the other commodity indices)?
Trend following
Negative skew
Long and short positions
Less dispersion
?
How does adding a commodity index to a portfolio of stocks and bonds change the efficient frontier?
It shifts the frontier down and to the right.
It shifts the frontier down and to the left.
It shifts the frontier up and to the left.
It shifts the frontier up and to the right.
?
What is the typical fee arrangement paid to Commodity Trading Advisors (CTAs)?
The “2 and 20†structure
1%-2% management fees but no performance fees
3%-5% management fees but no performance fees
?
What does the evidence from an empirical analysis of indices show with respect to adding managed futures to a portfolio of stocks and bonds?
Increased downside risk but an improved risk-return tradeoff
Increased downside and an improved risk-return tradeoff
Decreased downside risk but an improved risk-return tradeoff
Decreased downside risk and an improved risk-return tradeoff
?
The domestic one year risk free interest rate is 10%, the current spot exchange rate with a particular foreign currency is 1.00, and a one year futur...
5.12%
10.24%
15.36%
20.48%
?
What has empirical analysis of efficiency frontiers (including US stocks and bonds) with an allocation of 10% to commodity futures and of correlation...
That commodity futures provided downside protection and the non-US stocks decreased risk exposures
That commodity futures provided downside protection but the non-US stocks increased risk exposures
That commodity futures provided no downside protection but the non-US stocks decreased risk exposures
That commodity futures provided no downside protection and the non-US stocks increased risk exposures
?
Which of the following investment securities held by Zoogle Inc. may be classified as held-to-maturity securities in its balance sheet?
Long-term debenture bonds.
Common stock.
Callable preferred stock.
All of the above are correct.
?
Both fair values and subsequent growth of the investee are not as relevant for investments in which of the following categories?
Securities reported under the equity method.
Trading securities.
Held-to-maturity securities.
Securities available for sale.
?
Which category completely excludes equity securities?
Securities available for sale.
Consolidating securities.
Held-to-maturity securities.
Trading securities.
?
In 2009, Osgood Corporation purchased $4 million in ten-year municipal bonds at face value. On December 31, 2011, the bonds had a market value of $3,6...
Investment in Muni. Bonds: 3,600,000; Inc. Statement loss on Investments: 0
Investment in Muni. Bonds: 3,600,000; Inc. Statement loss on Investments: 400,000
Investment in Muni. Bonds: 4,000,000; Inc. Statement loss on Investments: 400,000
Investment in Muni. Bonds: 4,000,000; Inc. Statement loss on Investments: 0
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On January 1, 2011, Rupar Retailers purchased $100,000 of Anand Company bonds at a discount of $5,000. The Anand bonds pay 6% interest but were purcha...
$3336.
$3325.
$3000.
$3500
?
If Dinsburry Company concluded that an investment originally classified as a trading security would now more appropriately be classified as held to ma...
not reclassify the investment, as original classifications are irrevocable.
reclassify the investment as held to maturity and immediately recognize in net income all unrealized gains and losses as of the reclassification date.
reclassify the investment as held to maturity and treat the fair value as of the date of reclassification as the investment’s amortized cost basis for future amortization.
reclassify the investment as held to maturity, but there would be no income effect.
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Securities that are purchased with the intent of selling them in the near future to take advantage of short-term price changes are classified as:
Securities available for sale.
Consolidating securities.
Held-to-maturity securities.
Trading securities.
?
The income statement reports changes in fair value for which type of securities?
Securities reported under the equity method.
Trading securities.
Held-to-maturity securities.
Securities available for sale.
?
Trading securities are most commonly found on the books of:
Oil companies.
Manufacturing companies.
Banks.
Foreign subsidiaries.
?
For trading securities, unrealized holding gains and losses are included in earnings:
Only at the end of the fiscal year.
On each reporting date.
Only when they exceed 10% of the underlying investment.
Based on a vote of the board of directors.
?
Which of the following types of bonds is most likely to maintain a constant market value?
Zero-coupon.
Floating-rate.
Callable.
Convertible.
?
Metro, Inc., reported net income of $150,000 for the current year. Changes occurred in several balance sheet accounts during the current year as follo...
$150,400
$148,300
$144,900
$142,800
