Now it is Jan. 2, 2009. Suppose Smart Investments has all its funds invested in 1000...

Transcribed Image Text:

Now it is Jan. 2, 2009. Suppose Smart Investments has all its funds invested in 1000 shares of Teledyne stock whose current market value is $150 per share. Smart has three classes of securities outstanding: 1000 shares of its own common stock 80senior zero-coupon bonds with FV=$1000 and maturity date = July 19, 2009 50 junior zero-coupon bonds with FV=$1000 and maturity date = July 19, 2009 According to the indentures, the junior bondholders can only be paid after the senior bondholders have been paid in full. In the market, July call options on Teledyne common stock are traded and the current prices are as follows: Strike Price (X) Call Price (C) Strike Price (X) Call Price (C) 80 72 130 27 90 62 140 20 100 53 150 15 110 43 160 10 120 35 170 2 How much is the value of common stockholders' position? $15,000 $20,000 $27,000 35,000 43,000 How much is the value of the senior bonds? $43,000 $53,000 $62,000 78,000 82,000 How much is the value of the junior bonds? $27,000 $35,000 $45,000 51,000 53,000 Now it is Jan. 2, 2009. Suppose Smart Investments has all its funds invested in 1000 shares of Teledyne stock whose current market value is $150 per share. Smart has three classes of securities outstanding: 1000 shares of its own common stock 80senior zero-coupon bonds with FV=$1000 and maturity date = July 19, 2009 50 junior zero-coupon bonds with FV=$1000 and maturity date = July 19, 2009 According to the indentures, the junior bondholders can only be paid after the senior bondholders have been paid in full. In the market, July call options on Teledyne common stock are traded and the current prices are as follows: Strike Price (X) Call Price (C) Strike Price (X) Call Price (C) 80 72 130 27 90 62 140 20 100 53 150 15 110 43 160 10 120 35 170 2 How much is the value of common stockholders' position? $15,000 $20,000 $27,000 35,000 43,000 How much is the value of the senior bonds? $43,000 $53,000 $62,000 78,000 82,000 How much is the value of the junior bonds? $27,000 $35,000 $45,000 51,000 53,000

Answer rating: 100% (QA)

1 The correct answer is option B which is 200000 Working 1000 shares of Tel... View the full answer