Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
14th Edition
ISBN: 9780133507690
Author: Lawrence J. Gitman, Chad J. Zutter
Publisher: PEARSON
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Textbook Question
Chapter 6.2, Problem 6.7RQ
Differentiate between standard debt provisions and restrictive covenants included in a bond indenture. What are the consequences if a bond issuer violates any of these covenants?
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Students have asked these similar questions
A bond is a certificate of indebtedness that specifies
the obligations of the borrowers to the lender.
Select one:
True
False
To be effective issuing and investing in bonds, knowledge of their terminology, characteristics, and features is essential.
For example:
•
A bond’s refers to the interest payment or payments paid by a bond.
•
A bond issuer is said to be in if it does not pay the interest or the principal in accordance with the terms of the indenture agreement or if it violates one or more of the issue’s restrictive covenants.
•
The contract that describes the terms of a borrowing arrangement between a firm that sells a bond issue and the investors who purchase the bonds is called .
•
A bond’s gives the issuer the right to call, or redeem, a bond at specific times and under specific conditions.
Suppose you read an article about the Golden Gate Bridge and Highway District bonds. It includes the following information:
Bridge Bonds Series A Dated 7-15-2005 4.375% Due 7-15-2055 @100.00
What is the issuing date of this bond?
7-15-2005
7-15-2055…
Explain Bonds with Detachable Warrants.
Chapter 6 Solutions
Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
Ch. 6.1 - Prob. 1FOPCh. 6.1 - Prob. 6.1RQCh. 6.1 - What is the term structure of interest rates, and...Ch. 6.1 - For a given class of similar-risk securities, what...Ch. 6.1 - Prob. 6.4RQCh. 6.1 - List and briefly describe the potential issuer-...Ch. 6.2 - Prob. 1FOECh. 6.2 - What are typical maturities, denominations, and...Ch. 6.2 - Differentiate between standard debt provisions and...Ch. 6.2 - How is the cost of bond financing typically...
Ch. 6.2 - Prob. 6.9RQCh. 6.2 - Prob. 6.10RQCh. 6.2 - Compare the basic characteristics of Eurobonds and...Ch. 6.3 - Why is it important for financial managers to...Ch. 6.3 - Prob. 6.13RQCh. 6.3 - Prob. 6.14RQCh. 6.3 - Prob. 6.15RQCh. 6.4 - Prob. 6.16RQCh. 6.4 - What relationship between the required return and...Ch. 6.4 - If the required return on a bond differs from its...Ch. 6.4 - As a risk-averse investor, would you prefer bonds...Ch. 6.4 - Prob. 6.20RQCh. 6 - Prob. 1ORCh. 6 - Learning Goals 5, 6 ST6- 1 Bond valuation Lahey...Ch. 6 - Prob. 6.2STPCh. 6 - Prob. 6.1WUECh. 6 - The yields for Treasuries with differing...Ch. 6 - The YTMs for Treasuries with differing maturities...Ch. 6 - Assume that the rate of inflation expected over...Ch. 6 - Calculate the risk premium for each of the...Ch. 6 - Prob. 6.6WUECh. 6 - Prob. 6.7WUECh. 6 - Assume a 5-year Treasury bond has a coupon rate of...Ch. 6 - Prob. 6.1PCh. 6 - Prob. 6.2PCh. 6 - Prob. 6.3PCh. 6 - Yield curve A firm wishing to evaluate interest...Ch. 6 - Prob. 6.5PCh. 6 - Prob. 6.6PCh. 6 - Term structure of interest rates The following...Ch. 6 - Prob. 6.8PCh. 6 - Prob. 6.9PCh. 6 - Bond interest payments before and after taxes...Ch. 6 - Prob. 6.11PCh. 6 - Prob. 6.12PCh. 6 - Prob. 6.13PCh. 6 - Prob. 6.14PCh. 6 - Prob. 6.16PCh. 6 - Prob. 6.20PCh. 6 - Prob. 6.21PCh. 6 - Prob. 6.23PCh. 6 - Bond valuation: Semiannual interest Find the value...Ch. 6 - Prob. 1SE
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- A protective covenant in a bond indenture: Group of answer choices A. protects the borrower from unscrupulous practices by the lender. B. Gives the borrower the right to repay the bond early if interest rates decrease. C. limits some actions of the borrower that could hurt the investors. D. guarantees that a bond will be repaid in full with interest at maturity.arrow_forwardWhat is meant by a bond indenture?arrow_forwardWhich of the following statements is true regarding secured and unsecured bonds? O Secured bonds are issued against the general credit of the borrower. O Unsecured bonds are issued against the general credit of the borrower. O Secured bonds have specific assets of the issuer pledged as collateral. O Secured bonds have specific assets of the issuer pledged as collateral, and unsecured bonds are issued against the general credit of the borrower.arrow_forward
- what is the required method of amortizing discount and premium on bonds payable? Explain the procedures.arrow_forwardTRUE OR FALSE: The specific provisions of a bond issue are described in a document called a bond indenture.arrow_forwardWhat is a bond? Define face value, maturity date, contract rate, bond and bond indenture.arrow_forward
- What best describes the discount on bonds payable account? A liability An asset A contra liability An expensearrow_forwardWhich of the following is classified as nonmonetary? a. Warranty liability b. Accrued expense c. Unamortized discount on bonds payable d. Refundable depositarrow_forwardBonds which are collateralized by specific assets in the event the borrowing company defaults on bond payments are called: Select one: a. serial bonds. b. callable bonds. c. unsecured bonds. d. secured bonds. e. convertible bonds.arrow_forward
- In U.S. GAAP, bond issue costs are considered ________. Group of answer choices a period cost a cost of borrowing that reduces the effective interest expense an initial cost that is expensed when the bonds are issued an element in determining the carrying value of the bonds outstandingarrow_forwardAn affirmative covenant is most likely to stipulate: Limits on the issuer’s leverage ratio. How the proceeds of the bond issue will be used. The maximum percentage of the issuer’s gross assets that can be sold.arrow_forwardAre the over-collateralizationa requirements for mortgage pay-through bonds the same as for mortgage-backed bonds?arrow_forward
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