Question

1. A convertible bond allows the investor to exchange that bond for another issue of bonds within the convertible period.

Select one:

True

False

2. Bonds are issued with a callable feature when the issuers expect interest rates to rise.

Select one:

True

False

3. Bonds that have a call feature are less desirable to investors and therefore pay a slightly higher rate than bonds without this feature.

Select one:

True

false

4. Common stockholders have the right to vote on key corporate issues, but also have the last claim to the assets or profits of a company.

Select one:

True

false

5. A firm with a low debt ratio relative to the industry norm has a high degree of financial leverage and therefore may have a relatively high risk of default.

Select one:

True

false

Answer 1

Answer 1.
False

Explanation:
Convertible bonds are bonds that can be exchanged for common stock in the issuing company, not exchanged for another issue of Bond within the convertible period.

Answer 2.

False

Explanation:
Callable bond allows companies to pay off their debt early (redembale before maturity date) and benefit from favorable interest rate drops.
not expect interest rates to rise.

Answer 3.

True

Explanation:
In callable bond, issuer has the right to "call away" the bonds from the investor.This option introduces uncertainty to the lifespan of the bond.
To compensate investors for this uncertainty, an issuer will pay a slightly higher interest rate than non-callable bond.

Answer 4

True

Explanation:
Person own common shares of company are viewed as the true owners of that company. and they have specific privileges and rights that are governed by the laws.

Owner have the right to vote on key corporate issues, but also have the last claim to the assets or profits of a company after discharging all expenses and paid all claim.

Answer 5.

False

Explanation:
Firm with a low debt ratio relative to the industry norm has a less degree of financial leverage and therefore may have a relatively less risk of default.

Firm with a high debt ratio relative to the industry norm has a high degree of financial leverage and therefore may have a relatively high risk of default.

Leverage can refer to the amount of debt a firm uses to finance assets. If a firm is described as highly leveraged, the firm has more debt than equity.

Debt is often favorable to issuing equity capital, but too much debt can increase the risk of default or even bankruptcy.