Give two interpretations of the value of a bond from an option's perspective
What will be an ideal response?
First, thevalue of a bond can be viewed as a long position in the corporation's assets and the sale of a call option to the common stockholders on the corporation's assets. This implies that the value of a corporate bond is the value of the total assets reduced by the value of the call option.
Second, the value of a bond can be viewed as a position in a risk-free bond reduced by the value of the put position that the stockholders sold to the bondholders on the firm's assets. To value the option using this approach to corporate bond valuation, the following inputs are needed: the firm's capital structure; the firm's market value (typically derived from its stock price); and, the volatility of the firm's market value (typically derived from the volatility of the stock's price).
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As a potential equity investor, what information about a company would you be least interested in prior to making an investment decision?
A) What differentiates them from their competition? B) Whether they are generating a profit? C) Whether they have positive cash flows? D) What are the employee benefits and compensation packages?
The Common Stock account represents the stockholders' claim against specific assets of the company, while the Retained Earnings account represents the stockholders' claim against the general assets of the company
Indicate whether the statement is true or false
The average starting salary of this year's graduates of a large university (LU) is $25,000 with a standard deviation of $5,000. Furthermore, it is known that the starting salaries are normally distributed. a.What is the probability that a randomly selected LU graduate will have a starting salary of at least $31,000?b.Individuals with starting salaries of less than $12,200 receive a low income tax break. What percentage of the graduates will receive the tax break?c.What are the minimum and the maximum starting salaries of the middle 95% of the LU graduates?d.If 68 of the recent graduates have salaries of at least $35,600, how many students graduated this year from this university?
What will be an ideal response?
LePage Corporation reported a beginning balance of $2,200 in its Prepaid Insurance account. During the year, a total of $17,000 was recognized as Insurance Expense and the Prepaid Insurance account had an ending balance of $1,800. How much cash did LePage pay for insurance during the year?
A. $17,400 B. $18,800 C. $16,600 D. $17,000