1. What are some of the risks for a company of holding debt?

2. What is bankruptcy?

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3. Name three advantages of financing with debt.

4. Define “note.”

5. Define “bond.”

6. How do notes and bonds differ?

7. Define “face value” of a note or bond.

8. What are some of the ways a note or bond repayment can be structured?

9. Define “security.”

10. Define “debenture.”

11. Why are covenants included in loan agreements?

12. Define “zero coupon” bond.

13. Define “effective interest rate.”

14. How do a term bond and a serial bond differ?


Which of the following refers to an asset a creditor could take from a debtor if the debtor fails to pay back a loan?

a. Interest

b. Security

c. Covenant

d. Maturity

Krystal Corporation issued $100,000 with a 4 percent stated rate of interest on January 1. The effective rate of interest on that date was 6 percent and interest is paid semiannually on June 30 and December 31. The bonds mature ten years from now. What amount would bondholders be willing to pay Krystal on January 1 for the bonds?

a. $100,000

b. $85,123

c. $85,280

d. $140,000