Intermediate and Long-Term Debt Discussion

Intermediate and Long-Term Debt1. The amount borrowed in a(n) ______________ is called the
______________ and is repaid either at the ______________
of the period or at regular ______________ during this
period. The ______________ or note holder or
______________ receives ______________ as compensation.
For some types of debt the ______________ is paid periodically, and for other types is paid at the ______________ of
the debt period. The interest rate can be a(n)
______________ rate or a(n) ______________ rate which is
popularly referred to as a(n) ______________ rate.
2. Debt backed by ______________ is called ______________
debt and the property is ______________ or
______________. If there is no security, the creditor relies
entirely on the ______________ of the borrower to make
Ch15 Page 139 Tuesday, December 16, 2003 9:11 AM
140 QUESTIONS AND PROBLEMS
the promised ______________; therefore this type of debt is
______________ or a(n) ______________.
3. ______________ loans are negotiated directly between
______________ and ______________, where the
______________ is typically a commercial ______________,
a(n) ______________ company, or a(n) ______________
company. ______________ loans range in ______________
from two to ten years, though any repayment term is possible as long as it is a(n) ______________ term, or
______________ maturity, as opposed to a loan that is
payable on ______________.
4. Bonds may be either ______________ or ______________.
For ______________ bonds, the issuer maintains
______________ of who owns them and sends any
______________ or ______________ to the
______________ owners. For ______________ bonds,
physical ______________ of the ______________ entities
the receiver to the ______________. If ______________ is
payable, the ______________ simply clips a(n)
______________ attached to the certificate and sends it in
or ______________ it at a specified bank.
5. The ______________ feature of a convertible bond gives
the investor the right to ______________ the bond for
some other ______________, typically shares of
______________, at a predetermined rate of exchange. The
______________ should hold the bond until it becomes
Ch15 Page 140 Tuesday, December 16, 2003 9:11 AM
Intermediate and Long-Term Debt 141
______________ to convert it into shares of stock. It won’t
be worth converting unless the ______________ of the
shares of stock ______________.
6. Organizations that ______________ and ______________
the likelihood of debt ______________ and make the information available to the public are ______________ agencies.
The most popular agencies are ______________ Service,
______________ Corporation, and ______________. The
debt or ______________ ratings are important for the
______________ of and ______________ of debt. Many
banks, pension funds, and governmental bodies are
______________ from investing in securities that do not have
a(n) ______________ credit rating. Because investors want to
be compensated for ______________, the ______________
the ______________ risk associated with debt, represented
by ______________ ratings, the ______________ the yield
on debt demanded by investors, which means the
______________ the cost of raising funds via debt.
7. In all ______________ systems, the term ______________
grade means ______________ default risk, or conversely,
______________ probability of future payments. In general, ______________ bonds carry the highest-grade or
______________ ratings that are designated by a symbol of
triple ______________ through triple ______________.
______________ bonds are those bonds rated below triple
______________ and are also called ______________ or
______________ or ______________ bonds.
Ch15 Page 141 Tuesday, December 16, 2003 9:11 AM
142 QUESTIONS AND PROBLEMS
8. ______________ agencies consider the four Cs of
______________: ______________, ______________,
______________, and ______________. ______________
of management includes the ______________ reputation
and ______________ of management. ______________ is
the ability of an issuer to ______________ its obligations.
Collateral is the ______________ of ______________ and
______________ that are pledged to secure debt.
______________ are the binding ______________ and
______________ of the lending agreement.
9. Firms seeking to raise ______________ with
______________ offerings want to issue securities with the
______________ cost and the flexibility to ______________
the debt if interest rates ______________. Investors want
securities that provide the ______________ yield,
______________ risk, and the flexibility to ______________
if other, more profitable investment opportunities arise. The
best package of ______________ features will provide both
what investors are looking for and what the firm is willing to
offer. Today, this is available through the use of
______________ instruments because issuers can
______________ create ______________-rate or
______________-rate bonds by using ______________ rate,
______________, ______________, or ______________
based swaps.
Ch15 Page 142 Tuesday, December 16, 2003 9:11 AM
Intermediate and Long-Term Debt 143
SHORT ANSWER QUESTIONS
Refer to Chapter 15, pages 487–527 in Financial Management and Analysis.
1. How is the interest rate on debt determined and how is it
reset for floating rates?
2. Describe and discuss the difference between a fully amortizing loan and a bullet loan.
Ch15 Page 143 Tuesday, December 16, 2003 9:11 AM
144 QUESTIONS AND PROBLEMS
3. What is the difference between a note and a bond?
4. Describe the basic provisions of a bond issue.
Ch15 Page 144 Tuesday, December 16, 2003 9:11 AM
Intermediate and Long-Term Debt 145
5. How would a bond be called or retired prior to maturity?
Why would this happen?
6. What is the difference between a convertible bond and a
bond with a warrant option?