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Multiple Choice Questions

Please answer questions 1 and 2 using the following information:

The XLarge Corporation has a convertible bond outstanding with a conversion price of $28 per share. The $1000 par value bonds have a 5% coupon rate and 20 years to maturity. The firm's common stock is currently selling for $36 per share and the bonds are selling for $1,300.00.

Question 1
If equivalent bonds are currently yielding 10% to maturity, the pure bond value of this bond is (use semiannual analysis as presented in the text):
Choose one answer.
a. $570.98
b. $622.45
c. $759.72
d. $1,000

Question 2
The potential downside loss of the bond is:
Choose one answer.
a. $240.28
b. $300.00
c. $540.28
d. $729.02

3. The impact on EPS is influenced by all but the
Choose one answer.
a. relative debt/equity ratios of the firms.
b. exchange ratio.
c. relative earnings growth rates of the firms.
d. premium paid above market value for the acquired firm

4. The spot rate of the British pound to the dollar is 1.68 ($/£). The 180 day forward rate is $1.71, the annualized forward premium is:
Choose one answer.
a. 1.018%
b. 3.636%
c. 7.273%
d. 2.036

Solution Preview

Please see the attached Excel file which has answers to these questions.

Please answer questions 1 and 2 using the following information:
The XLarge Corporation has a convertible bond outstanding with a conversion price of $28 per share. The $1000 par value bonds have a 5% coupon rate and 20 years to maturity. The firm's common stock is currently selling for $36 per share and the bonds are selling for $1,300.00.

Question 1
If equivalent bonds are currently yielding 10% to maturity, the pure bond value of this bond is(use semiannual analysis as presented in the text):
Choose one answer.
  a. $570.98  
  b. $622.45  
  c. $759.72  
  d. $1,000  

Answer:   a. $570.98  

Pure bond value = Semi annual interest payment x PVIFA (r%, n time periods) + Face Value x PVIF (r%,n time ...

Solution Summary

Answers to MCQs on bonds, foreign exchange etc.

$2.19