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- Explain the use of a sinking-fund provision. How can it reduce the investor’s risk? What are protective covenants? Why are they needed? Explain the use of call provisions on bonds. How can a call provision affect the price of a bond? Explain the use of bond collateral, and identify the common types of collateral for bonds. What are debentures? How do they differ from subordinated debentures? What is a bond indenture? What is the function of a trustee with respect to the bond indenture? What are the advantages and disadvantages to a firm that issues low- or zero-coupon bonds?Why is a call provision advantageous to a bond issuer? When would the issuer be likely toinitiate a refunding call?What causes a gain or loss on the sale of a bond investment? Group of answer choices when the selling company negotiates a better price when the selling price of the bond differs from the book value (cost) of the bond when the selling company has unamortized discounts when the selling company has unamortized premiums
- A debenture is ________. A. the interest paid on a bond B. a type of bond that can be sold back to the issuing company whenever the bondholder wishes C. a bond with only the companys word that they will pay it back D. a bond with assets such as land to back their word that they will pay it backConvertible bonds normally allow bondholders to convert the bond into another security. True FalseThe contract Rate is also known as the coupon or stated rate that is identified in the bond indenture true false
- In regard to a bond discount or premium, what is the straight-line amortization method?A derivative security derives its value from another previously issued instrument (a stock or bond). True FalseWhat is the “call” feature of a bond issue? How does thecall feature affect the amortization of bond premium ordiscount?
- What does a bond issue's "call" feature entail? What effect does the call feature have on bond premium or discount amortization?Which is riskier to an investor, other things held constant—a callable bond or aputable bond? Explain.Why is it necessary to amortize the discount and premium on bond issues?
