FIN500 Bond Yield Asset Probability & Issues of Debit Problems

FIN500 New Mexico Bond Yield Asset Probability & Issues of Debit Problems Paper

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

1. Calculate the probability of default for the two companies.
2. 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 company 101.300%) through First Boston Corporation.

Interest 9.25% per annum, payable February 15 and August 15.

1. 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.
2. 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.

1. What is the conversion price?
2. The stock price is $54. What is the conversion value?