Order Type Of Risk For Debt Investors

Order Type Of Risk For Debt Investors
Order Type Of Risk For Debt Investors
1) Call protection mitigates which type of risk for debt investors when interest
rates are declining?
A. Credit risk
B. Operational risk
C. Reinvestment risk
D. Extension risk
2) Which of the following is NOT a covenant classification?
A. Financial
B. Limitation
C. Negative
D. Affirmative
3) Financial maintenance covenants are typical for __________________,
while __________________ typically have incurrence covenants.
A. Public companies; private companies
B. Private companies; public companies
C. High yield bonds; bank debt
D. Bank debt; high yield bonds
4) Which one of the following is NOT a financial maintenance covenant?
A. Maximum total leverage
B. Maximum senior secured leverage
C. Minimum dividend payments
D. Minimum interest coverage
156 CHAPTER 4 QUESTIONS
5) Which of the following would NOT be classified as a qualified institutional
buyer?
A. Retail investor with under $25 million in net worth
B. Equity asset manager with $200 million under management
C. Insurance company with $500 million in investments
D. Mutual funds with $10,000 million under management
5) With financial maintenance covenants, leverage ratios typically __________
throughout the life of the loan, while coverage ratios typically __________
A. Stay constant; increase
B. Stay constant; decrease
C. Decrease; increase
D. Increase; decrease
36) What is the current yield of a $1,000 bond (face value) with a coupon of
6.0% that is trading at par?
A. 3.0%
B. 6.0%
C. 6.3%
D. 6.5%
37) What is the current yield on a bond trading at $95 that was issued at par with
a 7.0% coupon rate?
A. 7.0%
B. 7.2%
C. 7.4%
D. 7.7%
38) What percent of committed funds do limited partners typically pay general
partners as a management fee?
A. 2%
B. 5%
C. 15%
D. 20%
Leveraged Buyouts 157
39) Bonds issued by corporations typically pay interest payments
A. Monthly
B. Quarterly
C. Semiannually
D. Yearly
40) Which of the following is NOT an advantage of using a revolver?
A. Shorter maturity compared to other institutional types of debt
B. Can be drawn, paid down, and redrawn freely during its maturity
C. Low interest rate
D. Issued by “relationship”-oriented commercial banks
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