Question

otherwise worth 130) or 16 (when the firm is otherwise worth 80.) If this the value of the stock? A. Increase by 4.67% B. increase by 3.33% C. decrease by 3.33% D. decrease by 4.67% E. none of the above. dle 27. XYZ h nezar dividend, it will repurchase 200 shares by offering its shareholders to tender shares for a payment of 110 er share. If more than 200 shares are tendered, XYZ will repurchase shares on a pro-rated basis, i.e., if 800 shares are tendered, XYZ will buy from each investor 25% of the shares tendered. Ignoring taxes, the price of a share immediately after the repurchase will be announced will share price when the tender offer is and the A. 97.5, not change B. 97.5, increase. C. 97.5, decrease D. less than 97.5, increase E. more than 97.5, decrease A bond with five detachable warrants has just been offered for sale for $1,000. The bond matures in eight has an annual coupon of $60. Each warrant grants its owner the right to purchase two shares of stocl in the company at $15 per share. Ordinary bonds (with no warrants) of similar quality are priced to yield 6.4 percent. What is the value of one warrant? 28. A. $2.45 B. $5.67 C. $12.25 D. $24.45 E. $4.89 29. This moming a national bakery agreed to pay a farmer $7.10 a bushel for 5.000 bushels of wheat th farmer will deliver to the bakery four months from now. Payment will be made at the time of delivery this legally binding agreement called? A. Forward contract B. Spot contract C. Swap D. Call option contract E. Futures contract

Answer 1

Q - 27

New share price = (Old market cap - cash outflow due to repurchase) / (Original number of shares outstanding - shares repurchased) = (1,000 x 100 - 110 x 200) / (1,000 - 200) = 97.5

Price will decrease from 100 to 97.5

Hence, the correct answer is option C

Q - 28

Value of a normal bond = - PV (Rate, Period, PMT, FV) = - PV (6.4%, 8, 60, 1000) = $ 975.55

Value of the 5 warrants = Price of the bond with warrants - price of the normal bond = 1,000 - 975.55 = $ 24.45

Value per warrant = 24.45 / 5 = 4.89

Hence the correct answer is the last option E.

Q - 29

The correct answer is first option A.

This is an example of over the counter forward contract.