Lorrie Mae T.

Licayan ACC212 (577) 7:30-8:30 PM

3rd year BS in Accounting Technology

Activity 1

1. True

2. False. Bonds are issued by both government and corporations.

3. True.

4. False. Treasury notes and bonds are issued by government only.

5. True.

6. True

7. True

8. False. It is called bond indenture.

9. True.

10. False. Subordinated debenture holders receive a cash distribution only after all
nonsubordinated debt has been repaid in full.

Activity 2

1. a. Cost to the bond issuer - debentures

b. Risk to the bondholder – subordinate bonds

c. Yield to the bondholder – mortgage bond

2. The main distinction between the two is how the payments are made. Unlike general
obligation bonds, which are backed by taxation, revenue bonds repayment of the
obligation is primarily guaranteed by the operating revenues of an entity.

3. The convertible bond is appealing to buyers because it provides the chance to gain
the potentially significant returns associated with stocks while maintaining the safety of
a bond.
4. One of the main reasons investors prefer non-callable bonds over callable bonds is
because a call provision is known to hinder price gain. The amount of interest payments
may be reduced as a result of a call provision, the final return on a bond is unclear.
Because of this uncertainty, callable bonds are less appealing to lenders than non-
callable bonds, necessitating a higher yield on callable bonds.