2008 Corporate Finance
Student Name:
Student ID Number:
Use pen (NO pencil)!
1.
B
2.
C
3.
B
4.
E
5.
B
6.
B
7.
B
8.
C
9.
C
10.
C
11.
D
12.
A
13.
B
14.
A
15.
A
16.
C
17.
D
18.
C
19.
E
20.
C
21.
C
22.
B
23.
C
24.
B
25.
B
26.
D
27.
A
28.
B
29.
A
30.
B
31.
A
32.
E
33.
D
34.
E
35.
C
36.
E
37.
B
38.
C
39.
E
40.
A
Short Essay
1. Suppose that the 150 units 12month zerocoupon debt with face value $1000 have
no conversion rights. What is the bond’s price today?
Use BS formula and get E
t
=19803.0436. The bond’s price today is
125,00019803.0436=105196.9564, so each bond is worth 105.197
0.08*1
01
2
0
1
1
21
2
( )
(
) 125000*0.5181 150000
*0.3247=19803.0436
2
ln(
/
)
(
/ 2)
ln(125000/150000)
(0.08
0.5*0.5/ 2)1
where
0.0454
0.5 1
( )=0.5181
0.4546, (
)
0.3247
rT
cSN
d K
eN
d
e
SK r
T
d
T
Nd
dd
T
N
d
σ
−−
=−
=
−
++
==
=
=
=
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document2008 Corporate Finance
What is the convertible bond’s price today
If the bonds are converted at maturity, the number of shares outstanding will be
1000+150*40=7000, and the value of the 150 bonds is thus A
t
150*40/7000=6/7A
t.
If A
t
is less
than 150,000, and 6/7A
t
is less than 150,000, then the bonds are not
converted. If A
t
is greater
than 150,000, and 6/7A
t
is greater than 150,000, then
the bonds will be converted, ie., A
t
is greater than 175,000, then convert.
This is the end of the preview.
Sign up
to
access the rest of the document.
 Spring '10
 wuyiling
 Finance, Corporate Finance, Debt, equity holders

Click to edit the document details