Question

QUESTION 33 The bond issue price is determined by calculating the 1. future value of the stream of interest payments and the future value of the maturity amount. 2. future value of the stream of interest payments and the present value of the maturity amount. 3.present value of the stream of interest payments and the future value of the maturity amount. 4. present value of the stream of interest payments and the present value of the maturity amount. QUESTION 34 Treasury shares represent the 1. maximum number of shares that can be sold by the corporation. 2. number of shares that are currently held by stockholders. 3. number of shares that the corporation has sold. 4. number of previously issued shares that have been repurchased by the corporation.

Answer 1

Question 33.

4. Present value of the stream of interest payments and the present value of the maturity amount.

Explanation:

If a bond say matures in 5 years, it has to be discounted with appropriate rate to present value.

Similarly stream of cash flows need to be discounted each year to the present value.

Hence, Bond issue price = Present value of maturity amount + Present value of interest payents.

Question 34.

4. number of previously issued shares that have been repurchased by the corporation.

Explanation:

Treasury shares reduces the total shareholders’ equity on company’s balance sheet and is contra account. These are shares that have been formerly issued by the company but now has been repurchased by the company and stands on balance sheet.

Question 35.

4. 6% per 6 month period.

If 12% is compounded semi-annually, there are two periods in year each of 6 month. So, the compounding will be of 6% every 6 month period.

Question 36.

3. Conversion privilege

Common stocks have voting and preemptive rights unless stated. After all the secured debtholders are paid, common stockholders’ get the residual assets. Unlike, debtholders or preference shareholders, the common equity holders do not have conversion privilege to convert into any other status.

Hence, common stock do not have conversion privilege.

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