Q&A Hero

Q: Which one of the following statements related to callable bonds is correct?A. Callable bonds are issued at the call price.B. Callable bonds can be called at any time.C. Callable bonds are generally called at the market price at the time of the call.D. Callable bonds are more apt to be called if market interest rates decline.E. Callable bonds are generally priced higher than comparable noncallable bonds.

Q: The entire formal contract between a bond issuer and the bondholders is found in which one of the following documents? A. prospectus B. prospectus summary C. indenture agreement D. indenture summary E. trust certificate

Q: Which of the following features would you expect a plain vanilla bond to have? I. semi-annual coupon payments II. $1,000 face value III. stated maturity date IV. multiple bonds within one issue A. I and II only B. II and III only C. II, III, and IV only D. I, II, and III only E. I, II, III, and IV

Q: A pension fund purchases bonds so that the payments from the bonds provide sufficient cash inflow in a timely manner to offset the cash outflows from the pension fund. What is this investment strategy called? A. cash flow matching B. cash diversification C. cash stabilization D. in-out investing E. plain vanilla matching

Q: Which one of the following features of corporate bonds has the greatest appeal to pension fund investors? A. call provision B. convertible provision C. zero repayment risk D. prospectus availability E. predictable cash flows

Q: Which one of the following parties is the largest holder of U.S. corporate bonds? A. pension funds B. life insurance companies C. banks D. foreign investors E. individual investors

Q: Which of the following are common characteristics associated with corporate bonds? I. specified cash flows II. equity ownership III. call feature IV. set maturity date A. I and II only B. I and IV only C. II and III only D. I, II, and IV only E. I, III, and IV only

Q: Bonds with relatively high coupons due to their speculative credit ratings are called which one of the following? A. investment-grade bonds B. high-yield bonds C. prudent risk bonds D. floating-rate bonds E. covenant bonds

Q: What are the restrictions on investment portfolios that require that all securities held within the portfolio meet a specified level of safety called? A. protective covenants B. negative restrictions C. prudent investment guidelines D. safety monitors E. risk ranges

Q: Which one of the following is an assessment of the credit quality of a bond based on the financial condition of the bond issuer? A. protective covenant B. risk analysis C. credit rating D. serial report E. in-the-money status

Q: Adjustable-rate bonds are identified by which one of the following characteristics? A. The coupon rate will increase should the credit rating of the bond decline. B. Different bonds within the same issue have different coupon rates. C. Bondholders can defer coupon payments at their discretion. D. The amount of each coupon payment will depend on the free cash flow of the issuer. E. The coupon rate changes in response to changes in current market rates.

Q: Which one of the following identifies a new bond issue as being a private placement? A. The proceeds of the issue are used for a single project. B. The issue is marketed through a sole brokerage house. C. The issue is sold only to individuals rather than to institutional investors. D. The issue is not made available to the public. E. The issue names a private individual as the bond trustee.

Q: What are the various provisions within a bond indenture that are designed to protect bondholders by restricting the actions of the issuer called? A. restrictive actions B. prohibitions C. negative conditions D. protective covenants E. restrictive amendments

Q: Which one of the following is an account used to provide for scheduled redemptions of outstanding bonds? A. redemption fund B. sinking fund C. liquidation account D. serial account E. callable account

Q: Bonds issued with a regular sequence of maturity dates are called which one of the following? A. callable bonds B. sequential bonds C. serial bonds D. sinking bonds E. put bonds

Q: Term bonds are defined as all bonds in a bond issue having which one of the following characteristics? A. sequential maturity dates B. serial maturity dates C. multiple maturity dates D. an identical maturity date E. renewable maturity dates

Q: What is a bond called if it can be converted into shares of stock of a firm other than the bond issuer? A. swap bond B. alternate bond C. exchangeable bond D. convertible bond E. callable bond

Q: Which one of the following terms is given to the value of a convertible bond that would equate to the value of a comparable nonconvertible bond? A. out-of-the money value B. in-the-money value C. discounted value D. external value E. intrinsic value

Q: Which one of the following defines an in-the-money bond? A. secured bond with collateral value that exceeds the bond's price B. callable bond with a call price that exceeds the current market price C. put bond with a put price that exceeds the current market price D. convertible bond with a call price that exceeds its conversion value E. convertible bond with a conversion value that exceeds its call price

Q: Which one of the following provisions grants the bondholder the option of exchanging a bond for a prespecified number of shares of stock of the same issuer? A. put B. call C. equity D. conversion E. sinking

Q: Which one of the following provisions grants the bondholder the option of selling the bond back to the issuer at a prespecified price on prespecified dates? A. convertible B. call C. put D. exchange E. sinking fund

Q: Which one of the following accurately describes bond refunding? A. replacing maturing bonds with a new bond issue B. calling existing bonds and refinancing those bonds with new debt C. paying off bonds early with excess cash generated by the firm D. replacing maturing bonds with an equity issue E. paying bonds off early to satisfy disgruntled bondholders

Q: Which one of the following is the clause which prevents a bond issuer from issuing new debt that has seniority over current debt? A. first-in-line B. sinking fund C. call provision D. affirmation E. negative pledge

Q: During a bankruptcy proceeding, Bond A will be paid only if funds remain after the bonds that have a higher claim on the issuer's assets have been paid. What type of bond is Bond A? A. plain vanilla bond B. senior trust bond C. junior trust bond D. subordinated debenture E. senior debenture

Q: Which one of the following is an unsecured bond that has a higher claim on a firm's assets than other unsecured bonds? A. plain vanilla bond B. subordinated debenture C. refunded bond D. senior debenture E. collateral trust bond

Q: What is the document called that is distributed to potential bondholders and provides detailed information on the financial position and operations of the bond issuer? A. indenture summary B. prospectus C. trust statement D. 10K E. 10Q

Q: Which one of the following is the portion of a prospectus that outlines the contractual terms of a new bond issue? A. indenture summary B. financial disclosure C. covenant agreement D. security agreement E. trust agreement

Q: Which one of the following is an unsecured bond issued by a corporation? A. indenture B. general obligation bond C. plain vanilla bond D. debenture E. trust bond

Q: Which one of the following terms is defined as debt issued without specific collateral pledged as security? A. unsecured debt B. indenture C. vanilla bond D. naked bond E. risk-free bond

Q: Which one of the following best defines a plain vanilla bond? A. bond secured by agricultural or food inventory B. bond with relatively standard features C. unsecured debt D. bond secured with financial collateral E. bond that has no coupon payments

Q: Which one of the following is NOT included in operating income? A. sales B. depreciation C. interest expense D. cost of goods sold E. other operating expenses

Q: The costs of materials used in the production of a product are recorded in which one of the following accounts? A. net sales B. fixed costs C. operating income D. depreciation E. cost of goods sold

Q: Sales minus cost of goods sold are equal to which one of the following? A. net sales B. operating income C. gross profit D. pretax income E. net income

Q: Which of the following are classified as equity accounts on a balance sheet? I. goodwill II. paid in capital III. net income IV. retained earnings A. IV only B. I and III only C. II and IV only D. I, II, and IV only E. II, III, and IV only

Q: Sugar Tree Cookies has current net income of $268,000 of which $110,000 was paid out in dividends. The remaining $158,000 will be shown in which account on the firm's financial statements for next year? A. long-term debt B. common stock C. net income D. retained earnings E. paid in surplus

Q: Winter's Clothing has a loan payable to a bank which is due 18 months from now. How is this loan classified on the firm's financial statements? A. fixed asset B. current liability C. long-term debt D. equity E. expense

Q: Stephen's Auto recently purchased Auto Express for $9.8 million. Auto Express had a market value of $9.5 million at the time of acquisition. The additional $0.3 million that Stephen's Auto paid for Auto Express will be treated on Stephen's Auto's balance sheet as which type of account? A. patent B. depreciation C. licenses D. goodwill E. acquisition expense

Q: Which one of the following is a tangible fixed asset? A. cash B. equipment C. accounts receivable D. right E. inventory

Q: Which one of the following is an intangible fixed asset? A. accounts receivable B. patent C. inventory D. equipment E. building

Q: Which of the following are current assets? I. inventory II. goodwill III. fixed assets IV. cash A. III only B. IV only C. II and III only D. I and IV only E. I, II, and IV only

Q: Which one of the following means of communication do most firms use for announcements in order to comply with Regulation FD? A. TV spots B. e-mail alerts C. public newspapers D. radio E. analyst networks

Q: Which of the following reports are always included in a 10K filing with the SEC? I. statement of cash flows II. balance sheet III. pro-forma statement IV. income statement A. I only B. IV only C. II, III, and IV only D. I, II, and IV only E. I, II, III, and IV

Q: Which one of the following ratios tells you the amount of assets a firm needs to generate $1 in sales? A. capital intensity ratio B. return on assets C. asset turnover rate D. profit margin E. earnings ratio

Q: Which one of the following is a financial planning method wherein some account values vary in relation to expected sales? A. common size approach B. linear method C. percentage of net income method D. adjusted sales method E. percentage of sales approach

Q: Pro forma financial statements are statements based on which one of the following? A. projected future income, cash flows, and other non-cash items B. historical revenue and expenses C. historical asset and liability values D. current period cash flows E. current period revenues and expenses

Q: Return on equity is equal to which one of the following? A. dividend yield divided by total equity B. retained earnings divided by total equity C. revenue divided by total equity D. net income divided by total equity E. operating cash flow divided by total equity

Q: Which one of the following is equal to net income expressed as a percentage of total assets? A. return on equity B. return on the balance sheet C. operating yield D. net yield E. return on assets

Q: Which one of the following is the cash flow resulting from the payment of dividends and the issuance or repurchase of equity securities? A. balance sheet cash flow B. operating cash flow C. financing cash flow D. business cash flow E. investment cash flow

Q: Which one of the following is the definition of investment cash flow? A. revenue minus expenses B. cash flow from the purchases and sales of fixed assets and investments C. cash flow originating from the issuance of securities D. cash generated by a firm's normal business activities E. pre-tax income

Q: Which one of the following is the definition of operating cash flow? A. revenue minus expenses B. cash realized from the sale of assets C. cash flow originating from the issuance of securities D. cash generated by a firm's normal business activities E. pre-tax income

Q: Income and expense items NOT realized in cash form are called which one of the following? A. deductible expenses B. noncash items C. intangible assets D. operating income E. financing activities

Q: Which one of the following is income realized in cash form? A. net income B. revenue C. cash flow D. retained earnings E. dividends

Q: Which one of the following is used to pay dividends or kept as retained earnings by a firm? A. equity B. net cash flow C. revenue D. net income E. expense

Q: Which one of the following is an ownership interest in a firm? A. asset B. expense C. net income D. liability E. equity

Q: Which one of the following represents the amounts owed by a firm to other parties? A. assets B. cash inflows C. equities D. liabilities E. expenses

Q: Which one of the following is defined as anything a firm owns that has value? A. equity B. asset C. liability D. cash inflow E. cash outflow

Q: Which one of the following is an analysis of a firm's sources and uses of cash over a period of time? A. income statement B. pro-forma income statement C. cash flow statement D. tax return E. balance sheet

Q: Which one of the following is an accounting statement that provides information on a firm's revenues and expenses? A. balance sheet B. cash budget C. pro-forma balance sheet D. income statement E. cash flow statement

Q: Which one of the following provides information on a firm's assets and liabilities as of a particular date? A. cash flow statement B. pro-forma income statement C. income statement D. tax return E. balance sheet

Q: Material nonpublic information is defined as any information that could reasonably be expected to do which one of the following? A. affect the price of the firm's securities B. cause great embarrassment to the firm C. cause one or more of the senior executives of the firm to resign D. cause the SEC to halt the trading of the firm's securities should that information become public E. affect the manner in which the firm presents its financial information

Q: Regulation FD requires companies to do which one of the following when disclosing material non-public information? A. advise the SEC 7 working days prior to such disclosure B. disclose the information without preference to any party or parties C. only disclose the information to professional analysts D. only disclose the information after a 7-day advance notice of an announcement E. disclose the information only after a 24-hour delay

Q: Better Products just filed its quarterly report with the SEC. This report is referred to as which one of the following? A. 10F B. 10K C. 10Q D. EDGAR 10 E. 10FD

Q: How frequently do corporations file 10K reports with the SEC? A. monthly B. quarterly C. semi-annually D. annually E. only when the firm engages in a merger or an acquisition

Q: You are interested in reviewing the information corporations file with the SEC. Which one of the following is the archive of these filings? A. SAMSON B. REG FD C. EDGAR D. Nonpublic information files E. ROA filings

Q: What value does the Statement of Cash Flows add to the financial statements of a firm?

Q: Why is the expected rate of sales growth so critical to pro forma statements?

Q: Explain the role the external financing need plays in the future growth outlook for a firm.

Q: What is the financing cash flow, given the following information?A. -$210B. -$160C. -$110D. -$60E. -$50

Q: What is the investment cash flow? A. -$220 B. -$140 C. -$120 D. -$20 E. -$10

Q: What is the operating cash flow, given the following information?A. $680B. $650C. $780D. $890E. $930

Q: What is the financing cash flow, given the following information? A. -$180 B. -$150 C. -$110 D. -$75 E. -$10

Q: What is the investment cash flow, given the following information? A. -$20 B. -$10 C. $10 D. $20 E. $100

Q: What is the operating cash flow, given the following information? A. $400 B. $470 C. $530 D. $540 E. $610

Q: A firm has the following account balances for this year. Sales for the year are $420,000. Projected sales for next year are $441,000. The percentage of sales approach is used for pro forma purposes. All balance sheet accounts, except long-term debt and common stock, change according to that approach. The firm plans to decrease the long-term debt balance by $23,500 next year. Retained earnings is expected to increase by $5,400 next year. What is the projected external financing need?A. -$14,150B. -$6,850C. $32,850D. $36,000E. $56,350

Q: A firm has the following account balances for this year. Sales for the year are $500,000. Projected sales for next year are $545,000. The percentage of sales approach is used for pro forma purposes. All balance sheet accounts, except long-term debt and common stock, change according to that approach. The firm plans to decrease the long-term debt balance by $5,000 next year. Retained earnings is expected to increase by $3,500 next year. What is the projected external financing need? A. $10,520 B. $14,720 C. $18,520 D. $20,720 E. $25,620

Q: A firm has current sales of $32,000. Projected sales for next year are $35,520. The percentage of sales approach is used for pro forma purposes. All balance sheet accounts, except long-term debt and common stock, change according to that approach. The expected increase in retained earnings is $2,200. What is the projected external financing need given the following current account values?A. -$3,532B. -$1,969C. -$1,390D. $231E. $1,341

Q: Zonvier, Inc. has sales of $53,800, a profit margin of 10.5 percent, and a plowback ratio of 40 percent. The company has 15,000 shares of stock outstanding. The firm uses the percentage of sales method for pro forma statements and estimates next year's sales will increase by 15 percent. What is the dividend per share expected to be next year? A. $0.249 B. $0.250 C. $0.260 D. $0.268 E. $0.274

Q: Last year, a firm had net income of $62,000 on sales of $595,000. The projected sales for next year are $654,500. Assume the firm uses the percentage of sales method for pro forma statements. What is the projected net income? A. $59,500 B. $65,500 C. $68,200 D. $71,500 E. $71,900

Q: A firm has net income of $25,000 on sales of $210,000. Sales are expected to increase by 8 percent next year and the dividend payout ratio is 35 percent. The firm uses the percentage of sales approach when compiling pro forma statements. What amount is expected to be added to retained earnings next year? A. $14,300 B. $15,400 C. $15,686 D. $17,550 E. $21,600

Q: Your company has pretax income of $52,000 on sales of $506,000. Sales are expected to increase by 6 percent next year and the tax rate is 40 percent. What is the expected net income for next year if your firm uses the percentage of sales approach when compiling pro forma statements? A. $28,938 B. $31,835 C. $33,072 D. $35,582 E. $44,520