Capital Structure

Question 1

proxy

Answer 1

authorizes someone else to vote for you

Question 2

Founders shares

Answer 2

are issued to the original owners of the firm

Question 3

put option

Answer 3

allows you to sell forward and future contracts at a fixed rate for a fixed period of time

Question 4

Sinking funds are designed to reduce the risk to bondholders by

Answer 4

gradually reducing/retiring the amount of debt the firm has outstanding

Question 5

In order to enforce the sinking fund provision

Answer 5

the bonds are often used with a call provision

Question 6

Indenture

Answer 6

legal document that outlines the obligations of the bond issuer

Question 7

Covenants

Answer 7

are provisions within an indenture detailing things the issuer must do (minimum ratios) or cannot do (issue additional debt without permission).

Question 8

Warrants

Answer 8

long term options attached to bonds that allows holder to purchase stock at specific price

Question 9

call option

Answer 9

is the right to buy stock at a fixed price

but it is NOT attached to a bond.

Question 10

debenture

Answer 10

unsecured bond