Question 1

The bond ________ contains much of the information filed in the bond registration and is used to inform potential buyers about the bond.

Accepted Answer

A prospectus is a document that provides detailed information about a security, including its terms, risks, and financial data. It is used to inform potential buyers about the bond and help them make an informed investment decision. The other answer choices are not typically associated with providing information to potential buyers.

Question 2

The ________ is the formal contract for the bond between the issuing company and the buyer.

Accepted Answer

The indenture is the formal contract that outlines the terms and conditions between the issuing company and the bond buyer. It includes details such as the interest rate, maturity date, and redemption provisions. A debenture is a type of bond that is unsecured by collateral, while a sinking fund is a mechanism used to set aside money to pay off a bond issue. A prospectus is a document that describes an investment opportunity to potential investors.

Question 3

Citizens' Bank of Business commercial loans are currently posted as having an 8.50% APR,with monthly payments due over a three-year period.If your firm takes out a $25,000 loan,what is the monthly payment,and what is the EAR? Use a financial calculator to determine your answer.

Accepted Answer

The answer of Citizens' Bank of Business commercial loans are...

Question 4

You have agreed to a $90,000 fixed-rate loan from Wells Fargo Bank today and promise to repay the loan with 60 equal monthly payments at an APR of 7.00%.What is the EAR of this loan?

Accepted Answer

The EAR (Effective Annual Rate) can be calculated using the formula: EAR = (1 + i/n)^(n) - 1, where i is the nominal rate (APR) and n is the number of compounding periods per year. For a monthly compounding loan with an APR of 7.00%, the EAR is approximately 7.23%.

Question 5

________ is a government-authorized agency created to enforce the 1933 Securities Act.

Accepted Answer

The SEC was created in 1934 by the US government to enforce the Securities Act of 1933, which established regulations for the sale and trading of securities in the United States. The SEC also regulates the activities of stock exchanges, brokers, and other market participants.

Question 6

Syndicated loans are generally reserved for large and mature businesses,and are for the long term rather than the short term.

Accepted Answer

Syndicated loans are typically used by established and financially stable companies to fund large projects or acquisitions, and are often long-term loans with repayment periods of five to ten years. These loans involve a group of lenders, or a syndicate, who pool their funds to provide the borrower with a larger loan amount than would be possible from a single lender.

Question 7

You have agreed to a $60,000 fixed-rate loan from Wells Fargo Bank today and promise to repay the loan with 48 equal monthly payments at an APR of 6.50%.How large are your monthly payments? Use a financial calculator to determine your answer.

Accepted Answer

The answer of You have agreed to a $60,000 fixed-rate...

Question 8

With a line of credit,a company can borrow money at a preset rate from the bank at any time,without seeking additional approval of the loan each time funds are needed.

Accepted Answer

A line of credit allows a company to access funds quickly and easily without needing to go through the approval process each time they borrow. The interest rate is often preset and agreed upon with the bank.

Question 9

Your bank has agreed to grant you a discount loan with an APR of 6.25%.If you need $12,000 today,how large is the face value of the loan?

Accepted Answer

The answer of Your bank has agreed to grant you...

Question 10

Syndicated loans are ________.

Accepted Answer

Syndicated loans are loans made by a group of lenders (typically banks) to a single borrower. This allows the lenders to spread the risk of the loan among themselves and enables the borrower to receive a larger loan than they may be able to obtain from a single lender.

Question 11

________ provides financial advice,helps design bond terms,makes sure that new bonds meet listing requirements,and then markets new bond issues.

Accepted Answer

Investment bankers are responsible for providing financial advice, designing bond terms, ensuring new bonds meet listing requirements, and marketing new bond issues. The Securities and Exchange Commission is a government agency that regulates securities markets, but does not provide financial advice or marketing services. The Federal Reserve is responsible for monetary policy and regulating banks, but does not deal with bond issues. Stock brokers mainly buy and sell shares of stocks for their clients, and do not deal with bond issues.

Question 12

Scan Bookkeeping has a $200,000 compensating balance loan with its bank.The terms of the loan call for Scan to keep 5% of the loan as a compensating balance and pay interest at an annual rate of 6.50% on the entire amount.If the firm borrows the maximum amount for one year,what is the EAR on this loan?

Accepted Answer

The effective annual rate (EAR) takes into account the effect of compounding on the stated interest rate. To calculate the EAR on this loan, we need to first find the amount of interest Scan will pay for the year:

Interest = $200,000 x 6.50% = $13,000

Next, we need to find the amount of the loan that Scan can actually use, after keeping the compensating balance:

Loan amount = $200,000 - (5% x $200,000) = $190,000

Now, we can use the loan amount and the interest paid to calculate the EAR:

EAR = (1 + Interest/Loan amount)^12/12 - 1
EAR = (1 + $13,000/$190,000)^12/12 - 1
EAR = 6.84%

Therefore, the best choice is D, with an EAR of 6.84%.

Question 13

Bonds may be issued through either a ________ or a ________.

Accepted Answer

Bonds may be issued through a public auction where they are offered for sale to the general public or through a private placement where they are sold directly to a small group of investors, such as banks or insurance companies. Therefore, option C is the correct choice. Options A, B, and D are incorrect because they either do not describe the correct types of auctions or do not provide an accurate alternative to a public auction or private placement.

Question 14

The bond indenture contains ALL BUT WHICH of the following?

Accepted Answer

The bond indenture typically contains information about the coupon rate, maturity date, and par value, but not the yield-to-maturity. The yield-to-maturity is a result of market conditions and not specified in the bond indenture.

Question 15

A letter of credit or line of credit is a preapproved borrowing amount that works much like a ________.

Accepted Answer

A letter of credit or line of credit works like a credit card in that it provides a preapproved borrowing amount that can be drawn upon as needed.

Question 16

A discount loan features a series of repayments to the bank.

Accepted Answer

A discount loan is a type of short-term loan in which the borrower receives the loan amount upfront but repays the loan at the end of the loan term in a single lump-sum payment that includes the principal, interest, and fees. There are no series of repayments to the bank.

Question 17

Your bank offers discount loans at a discount rate of 7.50%.If you borrowed $50,000 as a discount loan from the bank today at this rate (you receive less than the face value today and repay the face value in one year),how much money would you receive today? What is the EAR of this loan?

Accepted Answer

The answer of Your bank offers discount loans at a...

Question 18

Scan Bookkeeping has a $200,000 compensating balance loan with its bank.The terms of the loan call for Scan to keep 5% of the loan as a compensating balance and pay interest at an annual rate of 6.50% on the entire amount.If the firm borrows the maximum amount for one year,how much interest is due at the end of the year?

Accepted Answer

The interest is calculated on the entire loan amount of $200,000 at a rate of 6.50%. Therefore, the interest due at the end of the year is $200,000 * 6.50% = $13,000. The compensating balance does not affect the interest calculation.

Question 19

Your bank has agreed to grant you a discount loan with an APR of 3.25%.If you need $15,000 today,the loan is to be repaid in full in one year,and the total interest to be paid is $555,what is the EAR of the loan?

Accepted Answer