Question

U 101 7. Bonds are commonly used to finance a leveraged buyout a True b. False 8. Bonds that are unsecured are a Debentures b. Subordinated Debentures 9 Callable bonds are preferred compared to non callable bonds. a True b. False 10. Agency Bonds are bonds backed by: a Automobiles b. Residential Mortgages c. Real Estate Investment Trusts d Student loans

Answer 1

Answer 7:- Option (a)- True

(Explanation:- In leveraged buyout, the acquisition of another company is done by using a significant amount of borrowed money (which can be done in the form of bonds) in order to meet the cost of acquisition (which is quite huge). So, bonds can be a source to finance a leveraged buyout)

Answer 8:- Option (a)- Debentures

(Explanation:- Unsecured bonds are often more riskier than a secured bond because unsecured bonds are not backed with some type of guarantee or collateral and these are usually issued by such companies that don’t have enough assets to provide for collateral. So, Debentures are a form of unsecured bonds that are not backed by collareral but offers a periodic interest payment)

Answer 9:- Option (b)- False

(Explanation:- A callable bond is the one that can be called or repaid before the maturity whereas the non-callable bonds are the ones that are only paid out at maturity. It can’t be called prior to its date of maturity. That is why Callable bonds are usually riskier than non-callable bonds. Callable bonds are more likely to be called off when market interest rates are low and in such a situation the investors would have to reinvest the money at the current lower interest rate. Thereforre, the given statement is false.

Answer 10:- Option (c)- Real Estate Investment Trust

(Explanation:- An agency bond is a security which is issued by a government-sponsored enterprise. The offerings of these agencies are backed but not guaranteed by the US government. So, the answer in the given situation is Real Estate Investment trusts)