Newsome Inc

question 73

Multiple Choice

Newsome Inc.buys on terms of 3/15, net 45.It does not take the discount, and it generally pays after 60 days.What is the nominal annual percentage cost of its non-free trade credit, based on a 365-day year?

• A) 25.09%
• B) 27.59%
• C) 30.35%
• D) 33.39%
• E) 36.73%

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Definitions:

Convertible Bond

A financial instrument that can be converted by the bondholder into a predetermined quantity of the issuer's company shares at certain intervals throughout the bond's life, generally at the bondholder's discretion.

Straight Bond Value

The value of a bond without any embedded options; it pays fixed interest and returns the principal at maturity.

Conversion Value

The value of a convertible security if it is currently converted into the number of shares that the security is worth according to its conversion terms.

Option Value

The premium that investors are willing to pay for the possibility of higher returns associated with holding an options contract.