Reference no: EM132468019

Question 1: Altman and Namacher found the following historical average default rates applied to high-yield bonds:

• 5%
• 2%
• 10%
• None of the above

Question 2: Which of the following statements relating to leveraged loans are least likely true?

• A leveraged loan is a type of loan extended to companies or individuals that already have considerable amounts of debt and/or a poor credit history
• Lenders consider leveraged loans to carry a higher risk of default, and as a result, are less costly to the borrowers
• Leveraged loans have higher interest rates than typical loans, which reflect the increased risk involved issuing the loans
• A leveraged loan is structured, arranged, and administered by at least one commercial or investment bank

Question 3: Which of the following is true regarding Junk Bonds?

• They offer a lower yield than other bonds and have a low credit rating
• They offer a higher yield than other bonds and have a low credit rating
• They offer a lower yield than other bonds and have a high credit rating
• They offer a higher yield than other bonds and have a high credit rating

Question 4: The original issue high-yield bond market got its start in the late 1970s.

• True
• False

Question 5: Junk bonds are bonds with:

• AAA or Aaa ratings
• BBB or Baa ratings
• BB or Ba ratings or lower
• D rated bonds

Question 6: Which of the following factors contributed to the growth of the junk bond market?

• Development of market makers
• Standardized contracts
• Changing risk perceptions
• All the above

Question 7: Junk bond-financed takeovers were mainly concentrated in specific industries that were deregulated.

• True
• False

Question 8: The bonds of Ford Motor Company have received a rating of "B" by Moody's. The "B" rating indicates 

I. the bonds are insured

II. the bonds are junk bonds

III. the bonds are referred to as "high yield" bonds

I only

I and II

II and III

I, II and III

Question 9: Which of the following factors contributed to the collapse of the junk bond market?

• Default of integrated resources
• Bankruptcy of Drexel Burnham Lambert
• LTV bankruptcy
• All the above

Question 10: All of the following are advantages of staple financing except?

• It helps to expedite the sales process because it gives the seller more timely bids
• It increases the overall competition, and it forces the buyers to raise their offering price
• It can be used as a price signaling mechanism
• None of the above