honeycfa

The refunding provision found in nonrefundable bonds allows bonds to be retired unless:

A) the funds come from the sale of new common stock.

B) market interest rates have increased substantially.

C) the funds come from a lower cost bond issue.

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Refunding from a new debt issue at a higher interest rate is not prohibited, however their purchase cannot be funded by the simultaneous issuance of lower coupon bonds.

honeycfa

Which of the following statements regarding a sinking fund provision is most accurate?

A) It requires that the issuer set aside money based on a predefined schedule to accumulate the cash to retire the bonds at maturity.

B) It requires that the issuer retire a portion of the principal through a series of principal payments over the life of the bond.

C) It permits the issuer to retire more than the stipulated sinking fund amount if they choose.

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A sinking fund actually retires the bonds based on a schedule. This can be accomplished through either payment of cash or through the delivery of securities. An accelerated sinking fund provision allows the company to retire more than is stipulated in the indenture.

honeycfa

On November 15, 2006, Grinell Construction Company decided to issue bonds to help finance the acquisition of new construction equipment. They issued bonds totaling $10,000,000 with a 6% coupon rate due June 15, 2026. Grinell has agreed to pay the entire amount borrowed in one lump sum payment at the maturity date. Grinell is not required to make any principal payments prior to maturity. What type of bond structure has Grinell issued?

A) Serial bonds.

B) Income bonds.

C) Bullet maturity.

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These bonds have a bullet maturity structure because the issuer has agreed to pay the entire amount borrowed in one lump-sum payment at maturity.

honeycfa

Which of the following is the appropriate redemption price when redemption funds are obtained as a result of a forced sale of assets for deregulatory purposes?

A) Regular redemption price.

B) General redemption price.

C) Special redemption price.

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When redemption funds are obtained as a result of a forced sale of assets for deregulatory purposes, the funds can be used to redeem bonds at the special redemption price, which are typically par value.