Target Inc. has a $100 million debt and $500 million equity and is being bought out by a private equity fund in an LBO transaction. The PE fund will pay $700 million to buy out the target firm's existing equity, funded by 550 million of new debt and 150 million of equity investment. As a bondholder of Target Inc., which of the following is most likely to happen the value of your bond? O Increase O Decrease

Target Inc. has a $100 million debt and $500 million equity and is being bought out by a private equity fund in an LBO transaction. The PE fund will pay $700 million to buy out the target firm's existing equity, funded by 550 million of new debt and 150 million of equity investment. As a bondholder of Target Inc., which of the following is most likely to happen the value of your bond? O Increase O Decrease

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Consider the Compliance Bond Fund that consists of the seven bonds shown below and has no liabilities. If initially the value of the fund was $2,500,000 and the original shares were offered to the public with a NAV of $25 per share, what is the current NAV of the fund? a. $26.27 b. $25.00 c. $21.67 d. $26.11 e. $27.11
An investor has a cash of $29,379,685 at disposal. He wants to invest in a bond with $1,000 nominal value and whose dirty price is equal to 101.36%. What is the number of bonds he will buy? Round to the nearest integer. Blank Excel Worksheet Your Answer: Answer
You work for a public company that has relied heavily ondebt financing in the past and is now considering a preferredstock issuance to reduce its debt-to-assets ratio. Debt-to-assetsis one of the key ratios in your company’s loan covenants.Should the preferred stock have a fixed annual dividend rateor a dividend that is determined yearly? In what way mightthis decision be affected by IFRS?
You are the CFO of a company and the CEO wants you to tell him which evolution we will see in interest rates in the near future (say this year and next year). What do you tell him and why? Should your company issue bonds now?
JJ. 182.
An investor in the 22 percent tax bracket is trying to decide which of two bonds to select: one is a 5.5 percent U.S. Treasury bond selling at par, the other is a municipal bond with a 4.25 percent coupon, which is also selling at par. Which of the two bonds hould the investor select? Why?
39. Wanda Maximoff has been asked to compare the YTM of a zero-coupon bond that is currently being sold for $565 to the YTM of a 5.0% corporate bond that makes semiannual coupon payments and is currently priced at $1,028. Both bonds have 12 years remaining. Which bond should Wanda recommend for purchase? [Hint: You must use semiannual compounding for both bonds in your comparison.] OA Buy the zero coupon bond because the YTM is greater at 2.41% compared to the YTM of the corporate bond at 2.35%. OB. Buy the zero coupon bond because the YTM is greater at 4.87% compared to the YTM of the corporate bond at 4,69%. C. Buy the zero coupon bond because the YTM is greater at 4.82% compared to the YTM of the corporate bond at 4.69% O D. Buy the zero coupon bond because the YTM is greater at 4.69% compared to the YTM of the corporate bond at 4.53%. OE. Buy the zero coupon bond because the YTM is greater at 4.82% compared to the YTM of the corporate bond at 2.35% 0
Mr. Norman and Mr. Foster are both investors looking to buy financial assets. Mr. Norman prefers assets with the lowest prices while Mr. Foster prefers assets on the financial market with higher prices. Each of them currently has GHC 1,000 to invest and needs your assistance to know which asset to buy to suit their preference. The following information provides details of investment options. a. Asset A is a bond with a coupon rate of 10% and pays semi- annual coupons. The par value is GHC 1,000, and the bond has 5 years to maturity. The yield to maturity is 11%. b. Asset B is a stock whose dividend is expected to increase by 20% in one year and by 15% in two years. After that, dividends will increase at a rate of 5% per year indefinitely. The last dividend was GHC 100 and the required return is 20%. Which asset will Mr. Norman and Mr. Foster invest in? In the 2020 accounting year, investors made a number observations in terms of certain decisions some corporations were taking: (1) The…
5. You bought a convertible bond issued by Spark Corp which has a conversion ratio of 25 common shares for each $1,000 bond. a. At what stock price per share would you make a profit (“in the money") if you bought the bond at par? b. What would you expect the bond to sell for in the market if the stock trades at $48 per share?
You invest in a mutual fund that charges a 3% front-end load, 1% total annual fees, and a 0% back-end load on Class A shares. The same fund charges a 0% front-end load, 1% total annual fees, and a 2% back-end load on Class B shares. What are the total fees in year 1 on a Class B investment of $20,000 if you redeem shares with no growth in value? $600 $902 $596 $885
Please help. Assume that Almond Milk Company has a $1,000 face value bond with a stated coupon rate of 7.31 percent that is convertible into its common stock at $35.75. The bond is selling at $1,098.14 in the market. The common stock is selling for $33.01 and pays a dividend of 1.34 per share. Calculate the payback premium period. My teacher got 7.29 as the right answer, but I don't know how she got there
Suppose that a firm has 5 bondholders each expecting to be paid today their principal of $1 million each. The firm is in default, as its going-concern value is only $3 million, falling short of the $5 million to be repaid. The firm could liquidate and sell all of its assets for a value of $1 million, so that each bondholder would recover $200,000 on their claim. The firm offers its bondholders a debt-for-equity swap, but four of out the five bondholders must participate and become equityholders for the swap to succeed. In the table below, calculate the "lower bound" payoff if only four bondholders participate and the "upper bound" payoff if all five bondholders participate. The correct answer is lower bound=$500,000 and upper bound=$600,000

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