The Kirkcaldy Group’s CEO, Mr. Smith is considering the capital structure of his company. The company currently has 12% bonds with a face value of $20,000. Thus, these bonds require annual payments of $2,400. The bonds initially sold for 89.7. The current carrying value of these bonds is $18,168.25. The current market price for these bonds is 140. There is a call option that allows the company to buy these bonds back at 132. Mr. Smith would like to know, what would be the economic effects of extinguishing the bonds by (1) paying the market price and (2) exercising the call option: Group of answer choices Paying market price = $9,831.75 cost; Exercising call option = $1,600 benefit Paying market price = $0; Exercising call option = $8,231.75 cost Paying market price = $0; Exercising call option = $1,600 benefit Paying market price = $9,831.75 cost; Exercising call option = $8,231.75 cost None of the other choices shown are correct. Paying market price = $0; Exercising call option = $0
The Kirkcaldy Group’s CEO, Mr. Smith is considering the capital structure of his company. The company currently has 12% bonds with a face value of $20,000. Thus, these bonds require annual payments of $2,400. The bonds initially sold for 89.7. The current carrying value of these bonds is $18,168.25. The current market price for these bonds is 140. There is a call option that allows the company to buy these bonds back at 132. Mr. Smith would like to know, what would be the economic effects of extinguishing the bonds by (1) paying the market price and (2) exercising the call option: Group of answer choices Paying market price = $9,831.75 cost; Exercising call option = $1,600 benefit Paying market price = $0; Exercising call option = $8,231.75 cost Paying market price = $0; Exercising call option = $1,600 benefit Paying market price = $9,831.75 cost; Exercising call option = $8,231.75 cost None of the other choices shown are correct. Paying market price = $0; Exercising call option = $0
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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Question
The Kirkcaldy Group’s CEO, Mr. Smith is considering the capital structure of his company. The company currently has 12% bonds with a face value of $20,000. Thus, these bonds require annual payments of $2,400. The bonds initially sold for 89.7. The current carrying
Mr. Smith would like to know, what would be the economic effects of extinguishing the bonds by (1) paying the market price and (2) exercising the call option:
Group of answer choices
Paying market price = $9,831.75 cost; Exercising call option = $1,600 benefit
Paying market price = $0; Exercising call option = $8,231.75 cost
Paying market price = $0; Exercising call option = $1,600 benefit
Paying market price = $9,831.75 cost; Exercising call option = $8,231.75 cost
None of the other choices shown are correct.
Paying market price = $0; Exercising call option = $0
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