Question 3:

a. The Standard Company is interested in raising new equity capital through rights

issue/offering. Its current capital consists of 900,000 shares. It would set subscription

price at $ 50 a share of one new share for every 25 shares held and anticipates that shares

would sell for $58 with rights.

Required:

i. What was the total amount of new money raised?

ii. What was the prospective stock price after the issue?

iii. How many additional shares an investor holding 96,000 shares of the company

can purchase on exercising his rights?

iv. What was theoretical value of a right when share sells (i) with rights and (ii) exright

v. What amount the investor holding 96,000 shares of the company would get for his

rights immediately after the share goes ex-rights?

b. Explain the call feature on a bond. Would you expect a bond issue with a call provision to

carry a higher or lower coupon interest rate than a comparable bond without? Why?

When would a firm want to call a bond? Why?

c. Explain the primary means through which a company offers securities to general public.

d.

i. A $1,000, 13-week (91 days) United States Treasury bill can be purchased for

$985. Calculate the equivalent annual yield?

ii. Differentiate the features of debt and equity as a source of finance