Questions from Corporate Finance

Q: Question: For which of the following options might it be

For which of the following options might it be rational to exercise before maturity? Explain briefly why or why not. a. American put on a non-dividend-paying stock. b. American call—the dividend...

Q: Maple Aircraft has issued a 4¾% convertible subordinated debenture due 2020

Maple Aircraft has issued a 4¾% convertible subordinated debenture due 2020. The conversion price is $47.00 and the debenture is callable at 102.75% of face value. The market price of the convertible...

Q: Suppose that the J.C. Penney bond was issued at

Suppose that the J.C. Penney bond was issued at face value and that investors continue to demand a yield of 8.25%. Sketch what you think would happen to the bond price as the first interest payment da...

Q: Bond prices can fall either because of a change in the general

Bond prices can fall either because of a change in the general level of interest rates or because of an increased risk of default. To what extent do floating-rate bonds and puttable bonds protect the...

Q: Proctor Power has fixed assets worth $200 million and net working

Proctor Power has fixed assets worth $200 million and net working capital worth $100 million. It is financed partly by equity and partly by three issues of debt. These consist of $250 million of First...

Q: Elixir Corporation has just filed for bankruptcy. Elixir is a holding

Elixir Corporation has just filed for bankruptcy. Elixir is a holding company whose assets consist of real estate worth $80 million and 100% of the equity of its two operating subsidiaries. It is fina...

Q: a. Residential mortgages may stipulate either a fixed rate or a

a. Residential mortgages may stipulate either a fixed rate or a variable rate. As a borrower, what considerations might cause you to prefer one rather than the other? b. Why might holders of mortgage...

Q: After a sharp change in interest rates, newly issued bonds generally

After a sharp change in interest rates, newly issued bonds generally sell at yields different from those of outstanding bonds of the same quality. One suggested explanation is that there is a differen...

Q: Suppose that a company simultaneously issues a zero-coupon bond and

Suppose that a company simultaneously issues a zero-coupon bond and a coupon bond with identical maturities. Both are callable at any time at their face values. Other things equal, which is likely to...

Q: a. If interest rates rise, will callable or noncallable bonds

a. If interest rates rise, will callable or noncallable bonds fall more in price? b. Sometimes you encounter bonds that can be repaid after a fixed interval at the option of either the issuer or the b...