Answer:
Bond A
Explanation:
Interest rate risk is the likelihood of loss to bondholders emanating from an increase in a bond's market interest rate which is also the yield to maturity.
However, a bond is issued at a premium when its market interest rate is lower than the coupon rate and at a discount when the reverse is the case.
In this instance, bond A was issued at a discount while B was issued at a premium, hence, the market interest rate of Bond A is higher and it has a higher interest rate risk due to its yield to maturity which made it trade at a discount to the face value of $1000 per bond
An externality is the benefit enjoyed by a third party that is not directly involved in the production or consumption of a good or service.
Externalities can either be positive or negative;
Positive externalities occur when there is a positive gain on both the private level and social level.
Negative externalities occur when the social costs outweigh the private costs. For example in cases of pollution where an industry may decide to cut costs and increase profits by implementing new operations that are more harmful to the environment.
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Answer:
overall effect for the first year will be an increase of 94 millions in the cash flow.
Explanation:
The chip will provide:
27 million x $ (14 - 10) each = 104 millions of gross profit
But, decreases gross profit from older chip at rate of:
2 million x $ (11 - 6) each = 10 millions per year
The Chip will generate 104 gross profit but reduce other chip division profit by 10 million
<u>overall effect for the first year will be of 94 millions postive</u>
Answer:
Convertible Bonds
Explanation:
Convertible Bonds are debt securities which yield annual coupon rate of return, are redeemable after a period and during their life provide an option to the holder of such securities to get these converted into common stock based upon the conversion ratio.
Conversion ratio refers to the number of common stock that would be issued in return for a bond.
In the given case, Harry holds a security which provides him fixed return by law i.e obligatory for the borrower to pay him interest every year, expire after 10 years i.e period to maturity in addition to allowing him a conversion ratio of 50 i.e 50 common stocks for every bond held.
Thus, Harry owns a 10 year convertible bond.
