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Chapter 5: Q19-13DQ (page 622)
You buy a stock option with an exercise price of \(50. The cost of the option is \)4. If the stock ends up at $56, do you have a profit or loss with a call option? With a put option?
By using a call option, the stock optionwill makea profit.
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How does the bond rating affect the interest rate paid by a corporation on its bonds?
Take the following list of securities and arrange them in order of their priority of claims: (LO16-1)
Preferred stock Senior debenture
Subordinated debenture Senior secured debt
Common stock Junior secured debt
The trustee in the bankruptcy settlement for Titanic Boat Co. lists the following book values and liquidation values for the assets of the corporation. Liabilities and stockholders鈥� claims are also shown.
Assets | ||
Book value | Liquidation value | |
Accounts receivables | \(1,400,000 | \)1,200,000 |
Inventory | \(1,800,000 | \)900,000 |
Machinery and equipment | \(1,100,000 | \)600,000 |
Building and plant | \(4,200,000 | \)2,500,000 |
Total assets | \(8,500,000 | \)5,200,000 |
Liabilities and stockholder鈥檚 claims | |
Liabilities | |
Accounts payable | \(2,800,000 |
First lien, secured by machinery and equipment | \)900,000 |
Senior unsecured debt | \(2,200,000 |
Subordinated debenture | \)1,700,000 |
Total liabilities | \(7,600,000 |
Stockholder鈥檚 claims | |
Preferred stock | \)250,000 |
Common stock | \(650,000 |
Total stockholder鈥檚 claims | \)900,000 |
Total liabilities and stockholder鈥檚 claims | $8,500,000 |
d. After the machinery and equipment are sold to partially cover the first lien secured claim, how much will be available from the remaining asset liquidation values to cover unsatisfied secured claims and unsecured debt?
Under what circumstances would a call on a bond be exercised by a corporation? What is the purpose of a deferred call? (LO16-3)
What are some specific features of bond agreements? (LO16-1)
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