39. Each of the following is correct regarding bonds except they are
a. a form of interest-bearing notes payable.
b. attractive to many investors.
c. issued by corporations and governmental agencies.
d. sold in large denominations.
40. From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that
a. bond interest is deductible for tax purposes.
b. interest must be paid on a periodic basis regardless of earnings.
c. income to stockholders may increase as a result of trading on the equity.
d. the bondholders do not have voting rights.
41. If a corporation issued $3,000,000 in bonds which pay 10% annual interest, what is the annual net cash cost of this borrowing if the income tax rate is 30%?
42. Secured bonds are bonds that
a. are in the possession of a bank.
b. are registered in the name of the owner.
c. have specific assets of the issuer pledged as collateral.
d. have detachable interest coupons.
43. A legal document which summarizes the rights and privileges of bondholders as well as the obligations and commitments of the issuing company is called
a. a bond indenture.
b. a bond debenture.
c. trading on the equity.
d. a term bond.
44. Stockholders of a company may be reluctant to finance expansion through issuing more equity because
a. leveraging with debt is always a better idea.
b. their earnings per share may decrease.
c. the price of the stock will automatically decrease.
d. dividends must be paid on a periodic basis.
45. Which of the following is not an advantage of issuing bonds instead of common stock?
a. Stockholder control is not affected.
b. Earnings per share on common stock may be lower.
c. Income to common shareholders may increase.
d. Tax savings result.
46. Bonds that are secured by real estate are termed
a. mortgage bonds.
b. serial bonds.
d. bearer bonds.
47. Bonds that mature at a single specified future date are called
a. coupon bonds.
b. term bonds.
c. serial bonds.
48. Bonds that may be exchanged for common stock at the option of the bondholders are called
b. stock bonds.
c. convertible bonds.
d. callable bonds.
49. Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called
a. callable bonds.
b. early retirement bonds.
50. Investors who receive checks in their names for interest paid on bonds must hold
a. registered bonds.
b. coupon bonds.
c. bearer bonds.
d. direct bonds.
51. A bondholder that sends in a coupon to receive interest payments must have a(n)
a. unsecured bond.
b. bearer bond.
c. mortgage bond.
d. serial bond.
52. Bonds that are not registered are
a. bearer bonds.
c. registered bonds.
d. transportable bonds.
53. Bonds that are issued in the name of the owner are
a. coupon bonds.
b. bearer bonds.
c. serial bonds.
d. registered bonds.
54. Corporations are granted the power to issue bonds through
a. tax laws.
b. state laws.
c. federal security laws.
d. bond debentures.
55. The party who has the right to exercise a call option on bonds is the
a. investment banker.
56. A major disadvantage resulting from the use of bonds is that
a. earnings per share may be lowered.
b. interest must be paid on a periodic basis.
c. bondholders have voting rights.
d. taxes may increase.
57. Bonds will always fall into all but which one of the following categories?
a. Callable or convertible
b. Term or serial
c. Registered or bearer
d. Secured or unsecured
58. Which of the following statements concerning bonds is not a true statement?
a. Bonds are generally sold through an investment company.
b. The bond indenture is prepared after the bonds are printed.
c. The bond indenture and bond certificate are separate documents.
d. The trustee keeps records of each bondholder.
59. A bond trustee does not
a. issue the bonds.
b. keep a record of each bondholder.
c. hold conditional title to pledged property.
d. maintain custody of unsold bonds.
60. The contractual interest rate is always stated as a(n)
a. monthly rate.
b. daily rate.
c. semiannual rate.
d. annual rate.