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If a Company's Bond Can Be Purchased Today and Expects

question 13

Essay

If a company's bond can be purchased today and expects to earn investors 5% p.a, paying $100 at the end of 25 years, what is today's price? What could occur, to the price of the bonds if the company's level of risk increases? Why?


Definitions:

Cumulative Voting

A method of voting for corporate directors that allows shareholders to multiply their shares by the number of directorships being voted on and to allocate their votes among the candidates as they see fit.

Common Shares

Equity securities that represent ownership in a corporation, giving holders voting rights and a share in the company's profits through dividends or capital appreciation.

Directors

Individuals elected by shareholders to oversee the management and make strategic decisions for a corporation.

Model Business Corporation Act (MBCA)

A set of model laws prepared by the American Bar Association to provide a standard for the incorporation and operation of corporations in the United States.

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