The risk premium over and above the risk free rate consists of a number of components, including all of the following EXCEPT A)
tax treatment risk.
At any time, the slope of the yield curve is affected by
the comparative equilibrium of supply and demand in the short-term and long-term market segments. D)
all of the above.
Nico Nelson, a management trainee at a large New York-based bank is trying to estimate the real rate of return expected by investors. He notes that the 3-month T-bill currently yields 3 percent and has decided to use the consumer price index as a proxy for expected inflation. What is the estimated real rate of interest if the CPI is currently 2 percent? A)
A ________ is a restrictive provision on a bond which provides for the systematic retirement of the bonds prior to their maturity. A)
A ________ is a complex and lengthy legal document stating the conditions under which a bond has been issued. A)
________ is a paid individual, corporation, or commercial bank trust department that acts as a third party to a bond indenture to ensure that the issuer does not default on its contractual responsibilities to the bondholders. A)
A bond rating agency
A bond issuer
An investment banker
All of the following are examples of restrictive debt covenants EXCEPT A)
constraint on subsequent borrowing.
prohibition on selling accounts receivable.
prohibition on entering certain types of lease arrangements. D)
supplying the creditor with audited financial statements.
The purpose of the restrictive debt covenant that requires that subsequent borrowing be subordinated to the original loan is to A)
ensure that certain key employees are maintained.
ensure a cash shortage does not cause an inability to meet current obligations. C)
limit the amount of fixed-payment obligations.
protect the lender by maintaining its position in the priority of claims in the event of liquidation.
________ is a stipulation in a long-term debt agreement that subsequent or less important creditors agree to wait until all claims of the ________ are satisfied before having their claims satisfied. A)
The combination restriction; senior debt
The senior debt; common stockholders
Subordination; senior debt
Subordination; common stockholders
To compensate for the uncertainty of future interest rates and the fact that the longer the term of a loan the higher the probability that the borrower will default, the lender typically A)
reserves the right to change the terms of the loan at any time. B)
includes excessively restrictive debt provisions.
charges a higher interest rate on long-term loans.
reserves the right to demand immediate payment at any time.
The ________ feature permits the issuer to repurchase bonds at a stated price prior to maturity. A)
________ became popular vehicle used to finance mergers and takeovers during the 1980s. A)
Floating rate bonds
________ are bonds that have a short maturity, typically one to five years, and which can be redeemed or renewed for a similar period at the option of their holders. A)
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