Multiple-Choice Quiz

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Chapter 20:   Long-Term Debt, Preferred Stock, and Common Stock

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1. A bond issue may be retired by:

calling the bonds if there is a call feature.

converting the bonds (if convertible) into common stock.

making a single-sum payment at final maturity.

all of the above.

2. Protective covenants are:

to protect employees.

to protect the interests of the company.

to protect shareholders.

to protect bondholders.

3. Which of the following bonds offer the investor the most protection?

First-mortgage bonds


Subordinated debentures

Income bonds

4. A company refunds its bonds for any of the following reasons EXCEPT for:

to eliminate restrictive covenants.

to reduce interest costs.

to show higher reported profits.

to issue new bonds at higher rate of interest.

5. The call-option value of a callable bond is likely to be high when

interest rates are volatile.

interest rates are low and expected to remain low.

interest rate are high and expected to remain high.

markets are inefficient.

6. Treasury stock is:

common stock issued by the U.S. government.

preferred stock issued by the U.S. government.

common stock that has been repurchased and is being held by the issuing company.

a corporation's common stock outstanding.

7. A call provision, a sinking fund, and/or conversion are used to retire

bonds and preferred stock.

bonds and common stock.

preferred stock and common stock.

only common stock.

8. Preferred shareholders' claims on assets and income of a firm come          those of creditors          those of common shareholders.

before; and also before

after; but before

after; and also after

equal to; and equal to

9. Dual classes of          are common in new ventures where promotional          usually goes to the founders.

bonds; bonds

preferred stock; preferred stock

common stock; common stock

warrants; warrants

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