Question

1. Which of these statements about corporate bonds is correct?

A. Bonds provide equity financing.

B. Bonds are like IOUs with a promise to repay the amount borrowed, with interest, on a certain date.

C. Debenture bonds require assets pledged as collateral.

D. Issuing new bonds dilutes the existing ownership in the firm.

2. Purchasing insurance, paying employees, and selling goods on credit are all examples of financial transactions.

T / F

3. Costs of Goods Sold are the expenses of running a business that are not directly related to producing the products it will be selling.

T / F

4. Venture capitalists provide a source of debt financing and usually charge high interest for loans because of the high risk of the enterprises they finance.

T / F

Answer 1

1. Which of these statements about corporate bonds is correct?

Option B is correct.

Bonds are like IOUs with a promise to repay the amount borrowed, with interest, on a certain date.

Bonds are debt instruments, in which the issuer will have an obligation to pay interest at regular intervals and repay the principal amount at maturity.

A. Bonds provide equity financing. Incorrect because Bonds provide DEBT financing.

C. Debenture bonds require assets pledged as collateral. Incorrect Debentures are unsecured loans.

D. Issuing new bonds dilutes the existing ownership in the firm. Incorrect issuing new equity dilutes the existing ownership in the firm.

2. Purchasing insurance, paying employees, and selling goods on credit are all examples of financial transactions.

FALSE

These are examples of operating transactions, not fiancial transactions.

Financial transactions include issuing bond, issuing equity, share repurchase etc.

3. Costs of Goods Sold are the expenses of running a business that are not directly related to producing the products it will be selling.

FALSE

Cost of Goods Sold are directly related to producing the product.

4. Venture capitalists provide a source of debt financing and usually charge high interest for loans because of the high risk of the enterprises they finance.

FALSE

Venture capitalists provide a source of EQUITY financing and usually demand a very high portion of the company for a small equity.

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