The detailed legal agreement between a bond's issuer and its trustees is known as the
A) collateral agreement.
B) call provision.
C) indenture.
D) covenant.
The issuance of bonds to raise capital for a corporation
A) magnifies the returns to the stockholders.
B) increases risk to the stockholders.
C) is a cheaper form of capital than the issuance of common stock.
D) all of the above.
A(n)________ is used to outline the issuing company's contractual obligations to bondholders.
A) mortgage
B) debenture
C) bond rating
D) indenture
Bonds with ratings lower than Standard & Poor's BBB or Moody's Baa are classified as
A) in default.
B) investment grade.
C) not investment grade.
D) medium quality.
Which of the following features allows a borrower to redeem or repurchase a bond issue before its maturity date?
A) The call provision
B) Convertibility
C) Floating rate
D) The priority of claims
The par value of a corporate bond indicates the level of interest payments that will be paid to investors.
Answer: FALSE
Any unsecured long-term debt instrument is a debenture.
Answer: TRUE
A conversion feature confers the option of redeeming a bond for the company's stock rather than cash.
Answer: TRUE
The debenture is the legal agreement between the firm issuing a bond and the bond trustee who represents the bondholders.
Answer: FALSE
The current yield is the average rate of interest a bond will from the time of purchase until it matures.
Answer: FALSE
If the issuing company becomes insolvent, the claims of the bondholders are honored before those of preferred stockholders.
Answer: TRUE
