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Complete the following questions using Microsoft Word or Excel, as appropriate. Review the rubric to confirm you are meeting the assignment requirements.
Question 1:
Expected yield – You own a 6% bond maturing in two years and
priced at 88%. Suppose that there is a 9% chance that at maturity
the bond will default and you will receive only 41% of the promised
payment.
What is the bond’s promised yield to maturity?
Question 2:
The following table shows some financial data for two companies:
|
A |
B |
|
|
Total assets |
$1,587.1 |
$1,600.7 |
|
EBITDA |
–53 |
77 |
|
Net income + interest |
–73 |
31 |
|
Total liabilities |
744.0 |
1,467.1 |
- Calculate the probability of default for the two companies.
- Which company has the higher probability?
Question 3:
Refer to the following information:
|
Amount issued |
$400 million |
|
Offered |
Issued at a price of 101.50% plus accrued interest (proceeds to
|
|
Interest |
9.25% per annum, payable February 15 and August 15. |
- Suppose the debenture was issued on September 1, 1992, at 101.50%. How much would you have to pay to buy one bond delivered on September 15? Don’t forget to include accrued interest.
- What is the amount of the first interest payment?
Question 4:
ABC Corp. is prohibited from issuing more senior debt unless net tangible assets exceed 150% of senior debt. Currently, the company has outstanding $100 million of senior debt and has net tangible assets of $201 million. How much more senior debt can ABC Corp. issue?
Question 5:
IMO Microsystems’ 12% convertible is about to mature. The conversion ratio is 34. Assume a face value of $1,000.
- What is the conversion price?
- The stock price is $54. What is the conversion value?
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