A recently issued sovereign bond for a given maturity is also referred to as:

A、Directional

B、Ionic

C、Non-directional

D、Covalent

A company issued $2,000,000 of bonds with a 20 year maturity at 96.Seven years later, the company called the bonds at 103 when the unamortized discount was $39,000.The company would most likely report a loss of:

A.$60,000.

B.$99,000.

C.$138,000.

The original issuer of a security is referred to as a borrower, and the purchaser is referred to as a lender. Most securities traded in the secondary markets belong to one of two broad classifications: bonds or stocks. Bonds are credit instruments redeemable in a given number of dollars and yielding a fixed return. Important characteristics of bonds include face (or par) value, maturity date, and coupon rate. Face values for most bonds are 5; 1 000, although some government issues have $ 10 000 face values. Face value represents the total amount of cash payable to the owner at the bond's maturity date, which can range from 1 to 30 years. Prior to maturity, yearly coupon payments equal to the coupon rate times the face value are paid. These coupons represent a profit to the bond owner. Coupon rates on newly issued bonds closely follow the level of interest rates in the economy. Once set in the initial primary market sale, however, the coupon on a given issue will not change in response to changing interest rates in the economy. Instead, the market price of the bond changes. When a bond's coupon rate is equal to the general level of interest rates prevailing in the economy, the bond's market price will be equal to its face value. When the coupon rate is higher than prevailing interest rates, the bond will sell at a premium over its face value. When the coupon rate is lower than prevailing interest rates, the bond will sell at a discount from its face value. Interest on bonds constitutes a legal obligation, and failure to pay it may result in bankruptcy.

Preferred stocks are similar to bonds in that they have stated face values (often 100) and a specified dividend payment (similar to a bond's coupon). They differ from bonds because they do not have a scheduled maturity date and because yearly dividends may remain unpaid for a few years without forcing the issuer into bankruptcy. Common stocks have no specified yearly cash payments or maturity date. These securities have an infinite life on which cash will be earned only if the issuer has satisfactory profits. Because the cash returns on bonds are the most certain, they are viewed as the least risky investment and provide the lowest expected rate of return. Preferred stocks are viewed as more risky than bonds and less risky than common stocks. Common stocks are the most risky and provide the largest expected returns.

A secondary market is where ______.

A．the original security issuers sells their securities.

B．the original lender trade securities with other people.

C．loans are borrowed and paid with interest.

D．bond and stocks are traded by the original borrowers and leaders.

In October 2008 Ronger Properties Joint Stock Co successfully issued corporate bonds of RMB 12 million yuan for three years. By the end of 2010 the net assets of Ronger Properties Joint Stock Co were RMB 80 million yuan. During the past two years it has been able to repay the interests due for the corporate bonds.

In order to expand its business, the board of directors of Ronger Properties Joint Stock Co adopted a resolution intending to issue another set of corporate bonds to the public investors.

Required:

Answer the following questions in accordance with the relevant provisions of the Securities Law of China, and give your reasons for your answer:

(a) State the maximum amount of corporate bonds Ronger Properties Joint Stock Co could issue for the proposed issuance. (5 marks)

(b) State whether the proposed issuance of corporate bonds should be underwritten by an underwriting syndicate. (4 marks)

(c) State the statutory period of underwriting for the proposed issuance. (1 mark)

A company issued a $50,000 7-year bond for $47,565.The bonds pay 9 percent per annum and the yield-to-maturity at issue was 10 percent.The company uses the effective interest rate method to amortize any discounts or premiums on bonds.After the first year, the yield to maturity on bonds equivalent in risk and maturity to these bonds is 9 percent.The amount of the bond discount amortization ($) recorded in the second year isclosest to:

A.282.

B.348.

C.2,178.

The following financial information relates to YNM Co, which has a cost of equity of 12%. Assume that it is now 31 March 2011 and that the ordinary share price of YNM Co is $4·17 per share. YNM Co has been experiencing trading difficulties due to a continuing depressed level of economic activity:

Income statement information for recent years ending 31 March

Note: the statement of financial position takes no account of any dividend to be paid. The ordinary share capital of YNM Co has not changed during the period under consideration and the 8% bonds were issued in 1998.

Dividend and share price information

Financial objective of

YNM Co YNM Co has a declared objective of maximising shareholder wealth.

(1) To pay the same total cash dividend as in 2010

(2) To pay no dividend at all for the year ending 31 March 2011

Financing decision

YNM Co is also considering raising $50 million of new debt finance to support existing business operations.

Required:

(a) Analyse and discuss the recent financial performance and the current financial position of YNM Co, commenting on:

(i) achievement of the objective of maximising shareholder wealth;

(ii) the two dividend choices;

(iii) the proposal to raise $50 million of new debt finance. (13 marks)

(b) Discuss the following sources of finance that could be suitable for YNM Co, in its current position, to meet its need for $50m to support existing business operations:

(i) equity finance;

(ii) sale and leaseback. (6 marks)

(c) Explain the nature of a scrip (share) dividend and discuss the advantages and disadvantages to a company of using scrip dividends to reward shareholders. (6 marks)