Principles of Corporate Finance
13th Edition
ISBN: 9781260465099
Author: BREALEY, Richard
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Question
Chapter 24, Problem 14PS
Summary Introduction
To determine: The reasons why bond indentures may place limitations on the given actions.
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Students have asked these similar questions
Bonds which are collateralized by specific assets in the event the borrowing
company defaults on bond payments are called:
Select one:
a. serial bonds.
b. callable bonds.
c. unsecured bonds.
d. secured bonds.
e. convertible bonds.
To be effective issuing and investing in bonds, knowledge of their terminology, characteristics, and features is essential.
For example:
•
A bond’s refers to the interest payment or payments paid by a bond.
•
A bond issuer is said to be in if it does not pay the interest or the principal in accordance with the terms of the indenture agreement or if it violates one or more of the issue’s restrictive covenants.
•
The contract that describes the terms of a borrowing arrangement between a firm that sells a bond issue and the investors who purchase the bonds is called .
•
A bond’s gives the issuer the right to call, or redeem, a bond at specific times and under specific conditions.
Suppose you read an article about the Golden Gate Bridge and Highway District bonds. It includes the following information:
Bridge Bonds Series A Dated 7-15-2005 4.375% Due 7-15-2055 @100.00
What is the issuing date of this bond?
7-15-2005
7-15-2055…
An indenture is the contract between the company and its bondholders and contains the bond’s covenants.
Select one:
True
False
Chapter 24 Solutions
Principles of Corporate Finance
Ch. 24 - Bond terms Use Table 24.1 (but not the text) to...Ch. 24 - Bond terms Look at Table 24.1: a. The AMAT bond...Ch. 24 - Bond terms Select the most appropriate term from...Ch. 24 - Prob. 5PSCh. 24 - Bond terms Bond prices can fall either because of...Ch. 24 - Security and seniority a. As a senior bondholder,...Ch. 24 - Prob. 8PSCh. 24 - Prob. 9PSCh. 24 - Security and seniority a. Residential mortgages...Ch. 24 - Sinking funds For each of the following sinking...
Ch. 24 - Call provisions a. Look at Table 24.1. Suppose...Ch. 24 - Covenants Alpha Corp. is prohibited from issuing...Ch. 24 - Prob. 14PSCh. 24 - Private placements Explain the three principal...Ch. 24 - Convertible bonds True or false? a. Convertible...Ch. 24 - Convertible bonds Maple Aircraft has issued a 4%...Ch. 24 - Convertible bonds The Surplus Value Company had 10...Ch. 24 - Prob. 19PSCh. 24 - Convertible bonds Iota Microsystems 10%...Ch. 24 - Convertible bonds Zenco Inc. is financed by 3...Ch. 24 - Prob. 22PSCh. 24 - Prob. 23PSCh. 24 - Bank loans, commercial paper, and medium-term...Ch. 24 - Prob. 25PSCh. 24 - Tax benefits Dorlcote Milling has outstanding a 1...Ch. 24 - Convertible bonds This question illustrates that...Ch. 24 - Prob. 28PS
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Similar questions
- T or F -Under generally accepted accounting principles, gain or loss must be recognized on the conversion of bonds into equity securities. -A discount on bond payable is charged to interest expense using the effective interest method.arrow_forwardIdentify the following as either an advantage (A) or a disadvantage (D) of bond financing for a company. Bonds require payment of periodic interest.arrow_forwardWhy would a company wish to reduce its bond indebtedness before its bonds reach maturity? Indicate how this can be done and the correct accounting treatment for such a tarrow_forward
- A secured bond is one that is backed by specific corporate assets.arrow_forwardA debenture is ________. A. the interest paid on a bond B. a type of bond that can be sold back to the issuing company whenever the bondholder wishes C. a bond with only the companys word that they will pay it back D. a bond with assets such as land to back their word that they will pay it backarrow_forwardWhich of the following is not a valid statement regarding bonds payable? a. Bonds issued by an entity represent a financial liability and shall be measured at amortized cost using the effective interest method. b. The market price of a bond issue is the present value of its principal amount plus the present value of all future interest payments, both discounted at the market rate of interest when the bonds were issued. c. Bonds that mature at a single date are called term bonds. d. The amortization of a bond premium increases both the recorded interest expense and amortized cost.arrow_forward
- Bonds that pay no interest unless the issuing company is profitable are called Select one: O a. income bonds. O b. collateral trust bonds. Oc revenue bonds. O d. debenture bonds.arrow_forward1 a. Describe intercompany bonds. b. Explain how to eliminate intercompany bonds on the company’s financial statements.arrow_forwardDebt covenants are least likely to place restrictions on the issuer’s ability to:A . pay dividends.B . issue additional debt.C . issue additional equity.arrow_forward
- Which of the following statements is true regarding secured and unsecured bonds? O Secured bonds are issued against the general credit of the borrower. O Unsecured bonds are issued against the general credit of the borrower. O Secured bonds have specific assets of the issuer pledged as collateral. O Secured bonds have specific assets of the issuer pledged as collateral, and unsecured bonds are issued against the general credit of the borrower.arrow_forwardThe indenture is a contract between the issuer and lenders that does all the following EXCEPT ______. a. specify the manner in which the principal must be repaid b. give management's expectations about return of the proceeds c. list any restrictive covenants d. detail the nature of the debt issuearrow_forwardIn terms of public offerings of bonds, what is an indenture? A) a list of the duties of a trust company representing the bondholders' interests B) a memorandum that must be produced to describe the details of a bond offering C) a formal contract that specifies a firm's obligations to the bondholders D) a schedule of the fees charged by an underwriting companyarrow_forward
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