MODULE 5- MHA 706 EXAM QUESTIONS AND ANSWERS WITH
COMPLETE SOLUTIONS
Cost of capital
interest rate on debt security and influenced by interest rates.
Factors that influence the general level of interest rates
-investment opportunities
-time preferences for consumption
-risk
-inflation expectations
Investment opportunities and interest rates
the more profitable options the higher the interest rate.
Time preference on interest rates
people will prefer short term consumption vs. long term when make their decision.
inflation on interest rates
if investors are expecting it to rise in future, they would want a premium to ensure dollar
amount are equivalent.
Long term debt instruments
-Term loans
-Treasury bond
-Corporate bond
-municipal bond
, -Corporate bond
-public sale v. private placement
term loan
borrower agrees to make a series of interest in principal payment on specified dates to
a lender.
Treasury bond
maturity of one year or less
mortgage bonds
secured by real assets
Corporate debentures bond
no security in terms of having an underlying asset.
Debt contracts
-bond indenture
-loan agreement
-promissory note
bond indenture
legal document that list the rights and obligations of the bondholder and issuer.
interest rate
coupon rate in which the bondholder will be receiving on a regular basis.
Debt contracts contain
-General provisions
-maturity
-type of debt
COMPLETE SOLUTIONS
Cost of capital
interest rate on debt security and influenced by interest rates.
Factors that influence the general level of interest rates
-investment opportunities
-time preferences for consumption
-risk
-inflation expectations
Investment opportunities and interest rates
the more profitable options the higher the interest rate.
Time preference on interest rates
people will prefer short term consumption vs. long term when make their decision.
inflation on interest rates
if investors are expecting it to rise in future, they would want a premium to ensure dollar
amount are equivalent.
Long term debt instruments
-Term loans
-Treasury bond
-Corporate bond
-municipal bond
, -Corporate bond
-public sale v. private placement
term loan
borrower agrees to make a series of interest in principal payment on specified dates to
a lender.
Treasury bond
maturity of one year or less
mortgage bonds
secured by real assets
Corporate debentures bond
no security in terms of having an underlying asset.
Debt contracts
-bond indenture
-loan agreement
-promissory note
bond indenture
legal document that list the rights and obligations of the bondholder and issuer.
interest rate
coupon rate in which the bondholder will be receiving on a regular basis.
Debt contracts contain
-General provisions
-maturity
-type of debt
