22. What is meant by, and what is the implication of, a bond being senior compared to junior or "subordinated?"
a) Senior bondholders have a claim on the company's assets in bankruptcy ahead of junior bondholders; as a result, the yield on their bond is higher than that of the junior bond.
b) Senior bondholders have a claim on the company's assets in bankruptcy behind junior bondholders; as a result, the yield on their bond is lower than that of the junior bond.
c) Senior bondholders have a claim on the company's assets in bankruptcy behind junior bondholders; as a result, the yield on their bond is higher than that of the junior bond.
d) Senior bondholders have a claim on the company's assets in bankruptcy ahead of junior bondholders; as a result, the yield on their bond is lower than that of the junior bond.
23. Preferred dividends are paid a) from a company's revenue, similar to interest. b) out of profits, but before profits tax is applied. c) out of after-tax profits. d) after dividends on common shares are paid.
24. Which of the following issue bonds?
a) governments b) agencies of the federal government c) corporations d) all the above
25. By examining a company's balance sheet, which of the following can you not determine?
a) book value b) assets c) liabilities d) market value
26. A company intends to raise funds by issuing a security with the following promised cash flows: $150,000 in 3 years, $500,000 in 5 years. How much money will it raise if the discount rate for both cash flows is 5% (annual compounding)?
a) $509,292 b) $521,339 c) $519,048 d) $650,000