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Basic Question 5 of 16
The bond indenture specifies that the 8% issue due June 2017 of Canton Corp. is redeemable in the event of a merger at par value. The bond is callable after December 31, 2012 at 103. In the event of a merger between Canton Corp and a suitor company owners of this issue will receive:
B. par value.
C. 103% of par value.
A. the market price.
B. par value.
C. 103% of par value.
User Contributed Comments 7
| User | Comment |
|---|---|
| danlan | What is the par value specified in bond indenture? |
| mtcfa | It must be 100. |
| steved333 | It doesn't matter. The indenture says par. Par is par. |
| krisscfa | In the event of a merger between Canton Corp and a suitor company owners of this issue will receive.... Canton Corp and a suitor company will pay the bond holders the PAR Value...and the bond holders are not the owners of the company...makes sense?? |
| krisscfa | oops owners of this issue...correct |
| MattNYC | The call is also specified in the bond indenture. The question is really very simple, and the 103 call is not even relevant. I HATE these!! |
| alejandroc | Canton does have the option to call at 103%. But it's better for Canton to repay at par value! |
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
Learning Outcome Statements
describe fixed-income securities with embedded options;
CFA® 2025 Level II Curriculum, Volume 4, Module 28.