MHA 706: MOD 5 - LONG TERM DEBT FINANCING EXAM QUESTIONS WITH VERIFIED ANSWERS

MHA 706: MOD 5 - LONG TERM DEBT FINANCING EXAM

QUESTIONS WITH VERIFIED ANSWERS

What are the 4 Primary Factors that Influence the general level of interest rates?

- Investment opportunities

- time preference for consumption

- risk

- inflation expectations

What is the relation between INTEREST RATE and INVESTMENT

OPPORTUNITIES?

More opportunities, higher interest rate

What is the relation between INTEREST RATE and TIME PREFERENCE?

Less time horizon, greater interest rate

What is the relation between INTEREST RATE and RISK?

Higher risk, higher interest

What is the relation between INTEREST RATE and INFLATION?

higher economic inflation, higher interest rates

What is Term Loan?



What are examples of Loans?

- Borrower agrees to make a series of interests in principal payments on specified dates

to a lender.

, - Bank Loan / Student Loan / Mortgage Loans

What is a Bond?

- Similar debt instrument as Term Loan but are "issued"

- Mostly issued in "denominations" of 1k, 5k, 10k, etc.

What are the three types of Bonds?

- Treasury Bonds (Federal Government)

- Corporate Bonds

- Municipal Bonds (not-for-profit)

What are the three kinds of Treasury Bonds?

- Treasury Bills: Maturity of one year or less

- Treasury Notes: Maturity around 2 to 10 years

- Treasury Bonds: Maturity more than 10 years.

What are the two types of Corporate Bonds?

- Mortgage Bonds (secured with assets / property)

- Debentures (no security)

What is Public Placement vs. Private Placement?

Public Placement - Public may purchase bonds



Private Placement - Per investor or investor group, usually $10m or less

Debt Contracts are known by what three other names?