FSI Final Exam questions with complete solutions

FSI Final Exam questions with complete
solutions

5 Types of Debt
V V V V


Healthy -> Dead - answer-1. Investment Grade
V V V V V V


2. High Yield (Junk, Levered)
V V V V


3. Higher High Yield - Distress
V V V V V


4. Very High High Yield - Vulture
V V V V V V


5. Bankruptcy
V




Circle of Life of Debt - answer-Bad debt becomes equity of a new company
V V V V V V V V V V V V V




Raising capital tree map - answer-- equity
V V V V V V


---private
---public
------ipo
------green shoe V




-debt
---public issue V


---quasi, 144A V


---private placement V


---syndicated bank loans V V




Public issues - answer-- registered with the SEC
V V V V V V V




- public can buy
V V V




Quasi - 144A - answer-allows for public selling of bonds of a company that cant file
V V V V V V V V V V V V V V V


paperwork to be public
V V V V




Private Placements - answer-not registered with SEC
V V V V V V V




insurance company driven V V




Syndicated Bank Loan - answer-Investment Grade - sold to other commercial banks
V V V V V V V V V V V




High Yield - sold to institutions
V V V V V




Liability Waterfall of B/S - answer-Short Term Bank Borrowing (Commercial Paper)
V V V V V V V V V V

,Commercial Paper Outstanding V V




Sr Secured Debt
V V




Sr Debentures
V




Sub Debentures
V




Preferred Stock V




Common Equity V




Commercial Paper - answer-excess returns in market that AAA companies can borrow,
V V V V V V V V V V V




unsecured

maturity > 1 yr V V V




Commercial Paper Back Stop - answer-credit support or backup funds for a financial
V V V V V V V V V V V V


instrument or transaction
V V V V




A1/P1 companies dont need it
V V V V




A3 needs it because more likely to default
V V V V V V V




Major difference between financing with debt and equity - answer-Rating Agencies
V V V V V V V V V V




S&P/Fitch Rating vs Moodys Rating - answer-S&P/Fitch
V V V V V V




AAA
AA+
AA-
A
.
.
.
BBB-
----
BB+
.
.
.
D

Moodys

, Aaa
Aa1
A2
A1
.
.
.
Baa3
---
Ba1
.
.
.
D

Rating Agencies vs Fixed Income Research - answer-bias in FI rsrch bc IB can benefit
V V V V V V V V V V V V V V


from sales of bonds
V V V V




rating agencies - 3rd party
V V V V




improve by - dutch auction, machine learning, tech
V V V V V V V




How ratings are decided - answer-60% determined by size
V V V V V V V V




bigger = better V V




Issues with rating agency - answer-criteria for S&P and Moodys at odds with one
V V V V V V V V V V V V V


Vanother

but rating is lowered if you are only rated by one agency
V V V V V V V V V V V




Corporate Bond characteristics - answer-spread product = priced @ spread over
V V V V V V V V V V


LIBOR
V




Indenture - answer-terms agreed between issuer and buyer of bonds
V V V V V V V V V




Convenants - answer-Conditions lenders place on firms that seek long-term debt
V V V V V V V V V V


financing
V




- V positive
- V negative
- V maintenance
- V incurrence

Large Bond Issues are similar to - answer-IPO plus the addition of rating agencies
V V V V V V V V V V V V V