Questions from Financial Markets

Q: M&E, Inc., has an outstanding convertible bond.

M&E, Inc., has an outstanding convertible bond. The bond can be converted into 20 shares of common equity (currently trading at $52/share). The bond has five years of remaining maturity, a $1,000 par...

Q: Assume the debt in the previous question is trading at $1

Assume the debt in the previous question is trading at $1,035. How can you earn a riskless profit from this situation (arbitrage)? Data from Question 8: M&E, Inc., has an outstanding convertible bond...

Q: A seven-year, $1,000 par bond has

A seven-year, $1,000 par bond has an 8% annual coupon and is currently yielding 7.5%. The bond can be called in two years at a call price of $1,010. What is the bond yielding, assuming it will be call...

Q: A 20-year $1,000 par value bond has

A 20-year $1,000 par value bond has a 7% annual coupon. The bond is callable after the 10th year for a call premium of $1,025. If the bond is trading with a yield to call of 6.25%, what is the bond’s...

Q: A two-year $1,000 par zero-coupon

A two-year $1,000 par zero-coupon bond is currently priced at $819.00. A two-year $1,000 annuity is currently priced at $1,712.52. If you want to invest $50,000 in one of the two securities, which is...

Q: Consider the following cash flows. All market interest rates are 12

Consider the following cash flows. All market interest rates are 12%. a. What price would you pay for these cash flows? What total wealth do you expect after 2.5 years if you sell the rights to the...

Q: “In a world without information and transaction costs, financial intermediaries

“In a world without information and transaction costs, financial intermediaries would not exist.” Is this statement true, false, or uncertain? Explain your answer.

Q: The yield on a corporate bond is 10%, and it is

The yield on a corporate bond is 10%, and it is currently selling at par. The marginal tax rate is 20%. A par value municipal bond with a coupon rate of 8.50% is available. Which security is a better...

Q: If the municipal bond rate is 4.25% and the

If the municipal bond rate is 4.25% and the corporate bond rate is 6.25%, what is the marginal tax rate, assuming investors are indifferent between the two bonds?

Q: A 10-year, $1,000 par value bond

A 10-year, $1,000 par value bond with a 5% annual coupon is trading to yield 6%. What is the current yield?