E8-2. Convertibility. is convertible any time before it matures into 100 shares of stock. The stock that it may be converted into is currently selling for $12. What is the lowest price this bond could be selling for right now? Suppose a two percent coupon, $1,000 face value10-year bond E8-3. Covenants. Specific Motors, an upstart U.S. car company, has one outstanding bond issue worth S40 billion. It has no covenants. They decide to issue a new series of bonds, also worth $40 billion, but the new bonds are senior to their first issue. How does this make the first bondholders worse off? E84. Stockholder-Bondholder Conflict. Suppose Wal-Mart bonds have no cov- enants. How would Wal-Mart bondholders be hurt if Walmart unexpectedly merges with Ameristar Casino Inc.? E85. Stockholder-Bondholder Conflict. Using the stockholder-bondholder conflict, explain why stockholders get an excess return when they switch to higher risk higher return projects. In what sense is the return they get excess? E8-6. Call Options. What would you earn when you exercise a call option that you bought for a premium of $2 per share and a strike price of S35 per share if the price of the underlying stock was $47 per share on the option's expiration date? E8-7. Put Options. What would you earn on a put option with a strike price of $20 per share if the underlying stock was selling for $23 per share on expiration day? As sume the premium you paid on this put option was $1 per share E8-8. Options. If you think that the price of a stock is too high and likely to fall soon, there are two basic positions that you could take in the options market: One using a put, the other using a call. What are they? E8.9. Convertibility and the Stockholder-Bondholder Conflict. bonds were convertible into stock, how would the bondholders be able to benefit from the merger with Ameristar Casino Inc.? If Wal-Mart's E8-10. Real Options. make during the benefits period called open enrollment to augment their health insurance for a year. Suppose you typically don't get dental insurance as a regular benefit but you can add it in any year for an additional cost. Using the basic tenets of options, is this dental insurance likely to be inexpensive and cover lots of proce dures? Explain A well-known real option is the annual decision that some people E8-2. Convertibility. is convertible any time before it matures into 100 shares of stock. The stock that it may be converted into is currently selling for $12. What is the lowest price this bond could be selling for right now? Suppose a two percent coupon, $1,000 face value10-year bond E8-3. Covenants. Specific Motors, an upstart U.S. car company, has one outstanding bond issue worth S40 billion. It has no covenants. They decide to issue a new series of bonds, also worth $40 billion, but the new bonds are senior to their first issue. How does this make the first bondholders worse off? E84. Stockholder-Bondholder Conflict. Suppose Wal-Mart bonds have no cov- enants. How would Wal-Mart bondholders be hurt if Walmart unexpectedly merges with Ameristar Casino Inc.? E85. Stockholder-Bondholder Conflict. Using the stockholder-bondholder conflict, explain why stockholders get an excess return when they switch to higher risk higher return projects. In what sense is the return they get excess? E8-6. Call Options. What would you earn when you exercise a call option that you bought for a premium of $2 per share and a strike price of S35 per share if the price of the underlying stock was $47 per share on the option's expiration date? E8-7. Put Options. What would you earn on a put option with a strike price of $20 per share if the underlying stock was selling for $23 per share on expiration day? As sume the premium you paid on this put option was $1 per share E8-8. Options. If you think that the price of a stock is too high and likely to fall soon, there are two basic positions that you could take in the options market: One using a put, the other using a call. What are they? E8.9. Convertibility and the Stockholder-Bondholder Conflict. bonds were convertible into stock, how would the bondholders be able to benefit from the merger with Ameristar Casino Inc.? If Wal-Mart's E8-10. Real Options. make during the benefits period called open enrollment to augment their health insurance for a year. Suppose you typically don't get dental insurance as a regular benefit but you can add it in any year for an additional cost. Using the basic tenets of options, is this dental insurance likely to be inexpensive and cover lots of proce dures? Explain A well-known real option is the annual decision that some people