# fin500 1 bond yield asset probability issues of debit

No more than two pages, double spaced, explaination of equations used, 12 point. 1 inch margins.

#### Question 1:

Expected yield – You own a 6% bond maturing in two years and priced at 88%. Suppose that there is a 9% chance that at maturity the bond will default and you will receive only 41% of the promised payment.
What is the bondâ€™s promised yield to maturity?

#### Question 2:

The following table shows some financial data for two companies:

A B

Total assets \$1,587.1 \$1,600.7

EBITDA â€“53 77

Net income + interest -73 31

Total liabilities 744.0 1,467.1

1. Calculate the probability of default for the two companies.
2. Which company has the higher probability?

#### Question 3:

Refer to the following information:

Amount issued \$400 million

Offered Issued at a price of 101.50% plus accrued interest (proceeds to company 101.300%) through First Boston Corporation.

Interest 9.25% per annum, payable February 15 and August 15.

1. Suppose the debenture was issued on September 1, 1992, at 101.50%. How much would you have to pay to buy one bond delivered on September 15? Donâ€™t forget to include accrued interest.
2. What is the amount of the first interest payment?

#### Question 4:

ABC Corp. is prohibited from issuing more senior debt unless net tangible assets exceed 150% of senior debt. Currently, the company has outstanding \$100 million of senior debt and has net tangible assets of \$201 million. How much more senior debt can ABC Corp. issue?

#### Question 5:

IMO Microsystemsâ€™ 12% convertible is about to mature. The conversion ratio is 34. Assume a face value of \$1,000.

1. What is the conversion price?
2. The stock price is \$54. What is the conversion value?