Terminology* Fill in the blanks, using the following terms: floating rate, common stock, convertible, subordinated, preferred stock , senior, warrant. a. If a lender ranks behind the firm’s general creditors in the event of default, his or her loan is said to be ___. b. Interest on many bank loans is based on a of interest. c. A(n) _ bond can be exchanged for shares of the issuing corporation. d. A(n) _ gives its owner the right to buy shares in the issuing company at a predetermined price. e. Dividends on _ cannot be paid unless the firm has also paid any dividends on its ___.

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Answer 1

Textbook Question

Chapter 14, Problem 1PS

Terminology* Fill in the blanks, using the following terms: floating rate, common stock, convertible, subordinated, preferred stock, senior, warrant.

a. If a lender ranks behind the firm’s general creditors in the event of default, his or her loan is said to be _____.
b. Interest on many bank loans is based on a ____ of interest.
c. A(n) _____ bond can be exchanged for shares of the issuing corporation.
d. A(n) _____ gives its owner the right to buy shares in the issuing company at a predetermined price.
e. Dividends on _____ cannot be paid unless the firm has also paid any dividends on its _____.

Expert Solution & Answer

Summary Introduction

To fill in: The appropriate terminology.

Explanation of Solution

a.

In a case if the ranking of the lender is behind the general creditors in an default event then his or her loan is termed as subordinated.

b.

The bank loan interest is mainly based on the floating rate of interest.

c.

The bonds that can be exchanged for shares that are issued by a corporation is known as convertible bonds.

d.

A warrant provide their owner their rights to purchase the shares from the company that issues at a price that is predetermined.

e.

The common stock dividends cannot be paid unless the firm makes payment on the dividends of preferred stocks.

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An insurance company has liabilities of £7 million due in 10 years' time and £9 million due in 17 years' time. The assets of the company consist of two zero-coupon bonds, one paying £X million in 7 years' time and the other paying £Y million in 20 years' time. The current interest rate is 6% per annum effective. Find the nominal value of X (i.e. the amount, IN MILLIONS, that bond X pays in 7 year's time) such that the first two conditions for Redington's theory of immunisation are satisfied. Express your answer to THREE DECIMAL PLACES.

An individual is investing in a market where spot rates and forward rates apply. In this market, if at time t=0 he agrees to invest £5.3 for two years, he will receive £7.4 at time t=2 years. Alternatively, if at time t=0 he agrees to invest £5.3 at time t=1 for either one year or two years, he will receive £7.5 or £7.3 at times t=2 and t=3, respectively. Calculate the price per £5,000 nominal that the individual should pay for a fixed-interest bond bearing annual interest of 6.6% and is redeemable after 3 years at 110%. State your answer at 2 decimal places.

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Answer 2

Textbook Question

Chapter 14, Problem 1PS

Terminology* Fill in the blanks, using the following terms: floating rate, common stock, convertible, subordinated, preferred stock, senior, warrant.

a. If a lender ranks behind the firm’s general creditors in the event of default, his or her loan is said to be _____.
b. Interest on many bank loans is based on a ____ of interest.
c. A(n) _____ bond can be exchanged for shares of the issuing corporation.
d. A(n) _____ gives its owner the right to buy shares in the issuing company at a predetermined price.
e. Dividends on _____ cannot be paid unless the firm has also paid any dividends on its _____.

Expert Solution & Answer

Summary Introduction

To fill in: The appropriate terminology.

Explanation of Solution

a.

In a case if the ranking of the lender is behind the general creditors in an default event then his or her loan is termed as subordinated.

b.

The bank loan interest is mainly based on the floating rate of interest.

c.

The bonds that can be exchanged for shares that are issued by a corporation is known as convertible bonds.

d.

A warrant provide their owner their rights to purchase the shares from the company that issues at a price that is predetermined.

e.

The common stock dividends cannot be paid unless the firm makes payment on the dividends of preferred stocks.

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Answer 3

Textbook Question

Chapter 14, Problem 1PS

Terminology* Fill in the blanks, using the following terms: floating rate, common stock, convertible, subordinated, preferred stock, senior, warrant.

a. If a lender ranks behind the firm’s general creditors in the event of default, his or her loan is said to be _____.
b. Interest on many bank loans is based on a ____ of interest.
c. A(n) _____ bond can be exchanged for shares of the issuing corporation.
d. A(n) _____ gives its owner the right to buy shares in the issuing company at a predetermined price.
e. Dividends on _____ cannot be paid unless the firm has also paid any dividends on its _____.

Expert Solution & Answer

Summary Introduction

To fill in: The appropriate terminology.

Explanation of Solution

a.

In a case if the ranking of the lender is behind the general creditors in an default event then his or her loan is termed as subordinated.

b.

The bank loan interest is mainly based on the floating rate of interest.

c.

The bonds that can be exchanged for shares that are issued by a corporation is known as convertible bonds.

d.

A warrant provide their owner their rights to purchase the shares from the company that issues at a price that is predetermined.

e.

The common stock dividends cannot be paid unless the firm makes payment on the dividends of preferred stocks.

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Answer 4

Textbook Question

Chapter 14, Problem 1PS

Terminology* Fill in the blanks, using the following terms: floating rate, common stock, convertible, subordinated, preferred stock, senior, warrant.

a. If a lender ranks behind the firm’s general creditors in the event of default, his or her loan is said to be _____.
b. Interest on many bank loans is based on a ____ of interest.
c. A(n) _____ bond can be exchanged for shares of the issuing corporation.
d. A(n) _____ gives its owner the right to buy shares in the issuing company at a predetermined price.
e. Dividends on _____ cannot be paid unless the firm has also paid any dividends on its _____.

Expert Solution & Answer

Summary Introduction

To fill in: The appropriate terminology.

Explanation of Solution

a.

In a case if the ranking of the lender is behind the general creditors in an default event then his or her loan is termed as subordinated.

b.

The bank loan interest is mainly based on the floating rate of interest.

c.

The bonds that can be exchanged for shares that are issued by a corporation is known as convertible bonds.

d.

A warrant provide their owner their rights to purchase the shares from the company that issues at a price that is predetermined.

e.

The common stock dividends cannot be paid unless the firm makes payment on the dividends of preferred stocks.

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Answer 5

Textbook Question

Answer 6

Textbook Question

Answer 7

Expert Solution & Answer

Summary Introduction

To fill in: The appropriate terminology.

Explanation of Solution

a.

In a case if the ranking of the lender is behind the general creditors in an default event then his or her loan is termed as subordinated.

b.

The bank loan interest is mainly based on the floating rate of interest.

c.

The bonds that can be exchanged for shares that are issued by a corporation is known as convertible bonds.

d.

A warrant provide their owner their rights to purchase the shares from the company that issues at a price that is predetermined.

e.

The common stock dividends cannot be paid unless the firm makes payment on the dividends of preferred stocks.

Answer 8

Expert Solution & Answer

Summary Introduction

To fill in: The appropriate terminology.

Explanation of Solution

a.

In a case if the ranking of the lender is behind the general creditors in an default event then his or her loan is termed as subordinated.

b.

The bank loan interest is mainly based on the floating rate of interest.

c.

The bonds that can be exchanged for shares that are issued by a corporation is known as convertible bonds.

d.

A warrant provide their owner their rights to purchase the shares from the company that issues at a price that is predetermined.

e.

The common stock dividends cannot be paid unless the firm makes payment on the dividends of preferred stocks.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Summary Introduction

To fill in: The appropriate terminology.

Answer 12

Explanation of Solution

a.

In a case if the ranking of the lender is behind the general creditors in an default event then his or her loan is termed as subordinated.

b.

The bank loan interest is mainly based on the floating rate of interest.

c.

The bonds that can be exchanged for shares that are issued by a corporation is known as convertible bonds.

d.

A warrant provide their owner their rights to purchase the shares from the company that issues at a price that is predetermined.

e.

The common stock dividends cannot be paid unless the firm makes payment on the dividends of preferred stocks.

Answer 13

Ch. 14 - Terminology Fill in the blanks, using the...Ch. 14 - Prob. 2PS Ch. 14 - Sources of funds True or false? a. Net stock...Ch. 14 - Prob. 4PS Ch. 14 - Company ownership What do we mean when we say that...Ch. 14 - Prob. 6PS Ch. 14 - Prob. 7PS Ch. 14 - Prob. 8PS Ch. 14 - Corporate debt Which of the following features...Ch. 14 - Financial markets and intermediaries. True or...

Solution Summary: The author enumerates the terms used to describe subordinated loans, convertible bonds, warrants, and preferred stock dividends.

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