Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 24, Problem 4PS
a)
Summary Introduction
To determine: The principle under writers for the J bond issue.
b)
Summary Introduction
To determine: The trustee for the issue.
c)
Summary Introduction
To determine: The proceeds to the company after deducting the underwriters spread.
d)
Summary Introduction
To determine: Whether the bond is ‘bearer’ or ‘registered’.
e)
Summary Introduction
To determine: The price at which the issue is callable in 2005.
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Listed below are terms and definitions associated with bonds. Match (by letter) the bond terms with their definitions. Each letter is used only once. Terms_____ 1. Sinking fund._____ 2. Secured bond._____ 3. Unsecured bond._____ 4. Term bond._____ 5. Serial bond._____ 6. Callable bond._____ 7. Convertible bond._____ 8. Bond issue costs.Definitionsa. Allows the issuer to pay off the bonds early at a fixed price.b. Matures in installments.c. Secured only by the “full faith and credit” of the issuing corporation.d. Allows the investor to transfer each bond into shares of common stock.e. Money set aside to pay debts as they come due.f. Matures on a single date.g. Supported by specific assets pledged as collateral by the issuer.h. Includes underwriting, legal, accounting, registration, and printing fees.
Which of the following statements relating to bonds is incorrect?
A. A bond’s face value is the amount the issuer must pay to the bondholder at maturity.
B. The owner of a registered bond is the person to whom interest payments are mailed.
C. A bond will typically sell at a discount when its nominal rate is less than the current market rate of interest.
D. A bond is a debt instrument giving the issuer flexibility as to maturity date.
From page 9-2 of the VLN, what is the first thing you want to identify when approaching a bond problem?
Group of answer choices
A. Annual bond or semiannual bond
B. Whether the market rate is different from the stated rate.
C. The cash flows provided by the bond.
D. The company's debt to equity ratio.
Chapter 24 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 24 - Bond terms Select the most appropriate term from...Ch. 24 - Sinking funds For each of the following sinking...Ch. 24 - Security and seniority a. As a senior bondholder,...Ch. 24 - Prob. 4PSCh. 24 - Prob. 5PSCh. 24 - Private placements Explain the three principal...Ch. 24 - Prob. 7PSCh. 24 - Prob. 8PSCh. 24 - Convertible bonds True or false? a. Convertible...Ch. 24 - Prob. 10PS
Ch. 24 - Bond terms Bond prices can fall either because of...Ch. 24 - Prob. 13PSCh. 24 - Prob. 14PSCh. 24 - Security and seniority a. Residential mortgages...Ch. 24 - Prob. 16PSCh. 24 - Prob. 17PSCh. 24 - Call provisions a. If interest rates rise, will...Ch. 24 - Prob. 19PSCh. 24 - Covenants Alpha Corp. is prohibited from issuing...Ch. 24 - Prob. 21PSCh. 24 - Convertible bonds The Surplus Value Company had 10...Ch. 24 - Prob. 23PSCh. 24 - Convertible bonds Iota Microsystems 10%...Ch. 24 - Prob. 25PSCh. 24 - Convertible bonds Zenco Inc. is financed by 3...Ch. 24 - Tax benefits Dorlcote Milling has outstanding a 1...Ch. 24 - Convertible bonds This question illustrates that...Ch. 24 - Prob. 29PS
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- The principal of a bond is ________. A. the person who sold the bond for the company B. the person who bought the bond C. the interest rate printed on the front of the bond D. the face amount of the bond that will be paid back at maturityarrow_forwardWhich of the following would be included in the journal entry to show the conversion of bonds payable with additional consideration (a 'sweetener ' to encourage bondholders to sell their bond back )? (NIE 13) A debit to conversion expense debit to common stock A debit to cash A debit to bond discountarrow_forwardWhich one of the following statements is correct concerning bond classifications? Select one: a. A mortgage security is a bond issued solely by a home builder. b. A note is a bond which has an original maturity date longer than 10 years. c. A debenture is a long-term bond secured by the fixed assets of a firm. d. A callable bond can be repurchased by the issuer prior to the initial maturity date. e. A subordinated bond receives preferential treatment over all other bonds in a bankruptcy.arrow_forward
- You are given the following details of three default free government bonds. Assume that one can take long (buy) and short (sell) positions in these bonds. CF stands for cash flow. Bond Current price Today CF Year 1 CF Year 2 A 95.24 100 0 B 89.85 0 100 C X 70 1070 Assuming that the current market prices of Bond A and Bond B are correct, then, what should be the current theoretical (fundamental) price of Bond C, as per the no-arbitrage principle, i.e., what is the value of X? [Do not round-off any numbers. If at all you want to round-off a number, round it off at 8 decimal places.]arrow_forwardHow do you calculate the price of a bond? It is: The sum of the present value of the face amount and the value of credit default swaps The sum of the future value of annuity of interest and the fair value of its inventory The sum of the present value of annuity of interest and the face amount of the bond The sum of the current value of the issuing corporation of accounts receivables None of the above.arrow_forwardWhich of the following statements relating to bonds is incorrect? a. A bond is a debt instrument giving the issuer flexibility as to maturity date. b. None of the choices c. A bond’s face value is the amount the issuer must pay to the bondholder at maturity d. The owner of a registered bond is the person to whom interest payments are mailed. e. A bond will typically sell at a discount when its nominal rate is less than the current market rate of interestarrow_forward
- Which of the following statements is not correct? a) The export value of the bond; the value the investor pays when buying bonds b) Nominal value of the bond; is the value written on the bond c) Another reason for the difference in bond market prices is the dividend paid to bonds. d) Periodic interest amounts on bonds are calculated at nominal value. e) Market value of a bond is equal to the present value of the interest to be paid by the bond and the principal amount to be paid at the end of maturity. ------------------ What is the market value of İdil Gıda's bond with a nominal value of 15000 USD, maturity of 3 years and 30% annual interest payment, assuming that the desired yield rate is 36%? a) 12500b) 13494c) 9000d) 5456e) 7594 ============ What is the market value of Beril Gıda A.Ş.'s bond with a nominal value of USD 12,000, maturity of 5 years and an annual interest payment of 25%, when the desired rate of return is 25%? a) 18000b) 15000c) 12000d) 16000e)…arrow_forwardBearer bonds are bonds A-with coupons attached that are redeemable by whoever has the bond B-where the registered owner automatically receives bond payments when scheduled C-in which the issue matures on a series of dates. D-issued in another currency other than the bond issuer's home currency.arrow_forwardInitially, bond ratings were paid for by the bond purchaser. Today bonding ratings are under an “issuer pays” model. Explain how the two forms are different.arrow_forward
- In computing the carrying amount of a bond, unamortized _______ is added to the face value of the bond. If a bond sells at a _____________, an amount more than the face value of the bond is received on the date of issuance. If a bond sells at a ____________, an amount less than the face value of the bond is received on the date of issuance.arrow_forwardWhich of the following is the best explanation of what the call premium is? Group of answer choices The amount above the face value an investor must pay to purchase the bond. The additional amount above the face value that the company must pay to repay the bond early. The additional amount above the market price that a company must pay to repay the bond early. The amount above the market price that an investor must pay to purchase the bond.arrow_forwardWhich one of the following is the reason that bonds may sell at a discount or premium? Select one: a. Market conditions caused the coupon rate of interest to change between the time the bond agreement was written and the date the bonds were actually issued to investors b. The bond issuer failed to consider the market yield rate when the bond agreement was created c. The bond issuer adjusted the coupon rate to match that of other bond issues d. The market yield rate fluctuated between the time the bond agreement was written and the date the bonds were actually issued to investorsarrow_forward
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