Financial Instruments Paper 4


An analyst is comparing two bonds, each with a 2-year maturity and a face amount of $100,000. Although both bonds have a yield to maturity of 7.0%, Bond A has a coupon of 6% and Bond B has a coupon of 8%. Assuming that both bonds have annual interest payments, the prices of both Bond A and Bond B are closest to


If the interest rate on newly issued bonds increases due to expected inflation, which one of the following will most likely occur?


What variable is measured on the vertical axis of the yield curve?


iWidget Corporation issued convertible bonds with a par value of 1,000. The corporation’s stock is selling at $38.00 per share, and the current market price of the convertible bonds is $1,050. If the conversion ratio is 25, what will be the conversion price?


The par value of a common stock represents


In general, it is more expensive for a company to finance with equity capital than with debt capital because


The equity section of Smith Corporation’s Statement of Financial Position is presented below.
Preferred stock, $100 par $12,000,000
Common stock, $5 par 10,000,000
Paid-in capital in excess of par 18,000,000
Retained earnings 9,000,000
Net worth $49,000,000
The common shareholders of Smith Corporation have preemptive rights. If Smith Corporation issues 400,000 additional shares of common stock at $6 per share, a current holder of 20,000 shares of Smith Corporation’s common stock must be given the option to buy


Each share of nonparticipating, 8%, cumulative preferred stock in a company that meets its dividend obligations has all of the following characteristics except


A financial manager usually prefers to issue preferred stock rather than debt because


The following excerpt was taken from a company’s financial statements: “ . . . 10% convertible participating . . . 10,000,000.” What is most likely being referred to?


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