Which one of the following characteristics distinguishes income bonds from other bonds?
Answer(s): D
An income bond is one that pays interest only if the issuing company has earned the interest, although the principal must still be paid on the due date. Such bonds are riskier than normal bonds
Serial bonds are attractive to investors because
Answer(s): C
Serial bonds have staggered maturities; that is, they mature over a period (series) of years. Thus, investors can choose the maturity date that meets their investment needs. For example, an investor who will have a child starting college in 16 years can choose bonds that mature in 16 years
The best advantage of a zero-coupon bond to the issuer is that the
Zero-coupon bonds do not pay periodic interest. The bonds are sold at a discount from their face value, and the investors do not receive interest until the bonds mature. The issuer does not have to make annual cash outlays for interest. However, the discount must be amortized annual and reported as interest expense.
Junk bonds are
Answer(s): A
Junk bonds are high-risk and therefore high-yield securities that are normally issued when the debt ratio is very high. Thus, the bondholders have as much risk as the holders of equity securities. Such bonds are not highly rated by credit evaluation companies. Junk bonds have become accepted because of the tax deductibility of the interest paid.
The best reason corporation issue Eurobonds rather than domestic bonds is that
Answer(s): B
International bonds are of two types: foreign bonds and Eurobonds. Foreign bonds are denominated in the currency of the nation in which they are sold. Eurobonds are denominated in a currency other than that of the nation where they are sold. Foreign bonds issued in the United States and denominated in dollars must be registered with the SEC, but such extensive disclosure is not required in most European nations. Thus, an American company may elect to issue Eurobonds denominated in dollars in a foreign nation because of the convenience of not having to comply with governmental registration requirements.
Post your Comments and Discuss Financial CMA exam prep with other Community members:
Our website is free, but we have to fight against AI bots and content theft. We're sorry for the inconvenience caused by these security measures. You can access the rest of the CMA content, but please register or login to continue.