FIN 4504 FSU EXAM 2 SMITH QUESTIONS AND CORRECT
DETAILED ANSWERS (VERIFIED ANSWERS) ALREADY
GRADED A+
Bond Indenture Provisions Ans✓✓✓-the contract between the issuer
and the bond holder
-also specifies a set of restrictions that protect rights of the bondholders
---such restrictions include provisions relating to collateral, sinking
funds, dividend policy, and further borrowing
-the coupon rate, maturity date and par value of the bond are part of the
indenture
Call Provisions Ans✓✓✓- Allows the issuer to repurchase the bond at
a specified call price before the maturity date.
- There is usually a period of call protection - deferred callable bonds
- This option is valuable to the firm. They are issued with higher
coupons & promised YTM than non-callable bonds.
Face or par value Ans✓✓✓nominal value or dollar value of a security
stated by the issuer.
Coupon rate Ans✓✓✓-is the yield paid by a fixed-income security; a
fixed-income security's coupon rate is simply just the annual coupon
payments paid by the issuer relative to the bond's face or par value. The
coupon rate is the yield the bond paid on its issue date.
, Bond rating criteria Ans✓✓✓-Main rating companies: Moodys
investor services, Standard & Poors, Fitch
-Each rating firm assigns letter grades
-Main rating categories: investment grade, speculative (junk bonds)
grade
-Factors used by rating companies: Coverage ratios, Leverage ratios,
Liquidity ratios, Profitability ratio, Cash flow to debt ratios
Coverage ratio Ans✓✓✓TIE, Fixed Charges Coverage Ratio
Leverage ratios Ans✓✓✓- Debt-to-Equity ratio or debt-to-asset ratio
Liquidity ratio Ans✓✓✓Current and quick ratio
Profitability ratio Ans✓✓✓Return on assets and return on equity
Bond Pricing Criteria Ans✓✓✓-the price an investor is willing to pay
for them depends on the value of dollars to be received in the future
compared to dollars in hand today
-the flat price or quoted price
-face or par value
-coupon rate
The flat price or quoted price Ans✓✓✓assumes the bond is purchased
on a coupon payment date
DETAILED ANSWERS (VERIFIED ANSWERS) ALREADY
GRADED A+
Bond Indenture Provisions Ans✓✓✓-the contract between the issuer
and the bond holder
-also specifies a set of restrictions that protect rights of the bondholders
---such restrictions include provisions relating to collateral, sinking
funds, dividend policy, and further borrowing
-the coupon rate, maturity date and par value of the bond are part of the
indenture
Call Provisions Ans✓✓✓- Allows the issuer to repurchase the bond at
a specified call price before the maturity date.
- There is usually a period of call protection - deferred callable bonds
- This option is valuable to the firm. They are issued with higher
coupons & promised YTM than non-callable bonds.
Face or par value Ans✓✓✓nominal value or dollar value of a security
stated by the issuer.
Coupon rate Ans✓✓✓-is the yield paid by a fixed-income security; a
fixed-income security's coupon rate is simply just the annual coupon
payments paid by the issuer relative to the bond's face or par value. The
coupon rate is the yield the bond paid on its issue date.
, Bond rating criteria Ans✓✓✓-Main rating companies: Moodys
investor services, Standard & Poors, Fitch
-Each rating firm assigns letter grades
-Main rating categories: investment grade, speculative (junk bonds)
grade
-Factors used by rating companies: Coverage ratios, Leverage ratios,
Liquidity ratios, Profitability ratio, Cash flow to debt ratios
Coverage ratio Ans✓✓✓TIE, Fixed Charges Coverage Ratio
Leverage ratios Ans✓✓✓- Debt-to-Equity ratio or debt-to-asset ratio
Liquidity ratio Ans✓✓✓Current and quick ratio
Profitability ratio Ans✓✓✓Return on assets and return on equity
Bond Pricing Criteria Ans✓✓✓-the price an investor is willing to pay
for them depends on the value of dollars to be received in the future
compared to dollars in hand today
-the flat price or quoted price
-face or par value
-coupon rate
The flat price or quoted price Ans✓✓✓assumes the bond is purchased
on a coupon payment date
