Question 1 -Bond [6 points]: What effect do you think each of the following items should have on the interest rate that a firm must pay on a new issue of long-term debt? Indicate whether each factor would tend to raise, lower, or have an indeterminate effect on the interest rate, and then explain why. a) The firm uses bonds rather than a term loan. b) The firm uses debentures rather than first mortgage bonds. c) The firm makes its bonds convertible into common stock. d) The firm puts a call provision on its new issue of bonds. e). The firm includes a sinking fund on its new issue of bonds. f) The firm's bonds are downgraded from A to BBB. Question 2 - Convertible Preferred Stock [4 points]: Four years ago, Ideal Solutions issued convertible preferred stock with a par value of $100 and a stated dividend of 5 percent. Each share of preferred stock can be converted to four shares of common stock at the option of the investor. When issued, the preferred stock was sold at par value such that Ideal raised $2.5 million to fund expansion of its operations. a) What is the annual dividend per share on the preferred stock? b) What is the conversion price of the preferred stock? When should an investor consider converting into common stock? (Ignore taxes and other costs that might be associated with conversion) Question 1 -Bond [6 points]: What effect do you think each of the following items should have on the interest rate that a firm must pay on a new issue of long-term debt? Indicate whether each factor would tend to raise, lower, or have an indeterminate effect on the interest rate, and then explain why. a) The firm uses bonds rather than a term loan. b) The firm uses debentures rather than first mortgage bonds. c) The firm makes its bonds convertible into common stock. d) The firm puts a call provision on its new issue of bonds. e). The firm includes a sinking fund on its new issue of bonds. f) The firm's bonds are downgraded from A to BBB. Question 2 - Convertible Preferred Stock [4 points]: Four years ago, Ideal Solutions issued convertible preferred stock with a par value of $100 and a stated dividend of 5 percent. Each share of preferred stock can be converted to four shares of common stock at the option of the investor. When issued, the preferred stock was sold at par value such that Ideal raised $2.5 million to fund expansion of its operations. a) What is the annual dividend per share on the preferred stock? b) What is the conversion price of the preferred stock? When should an investor consider converting into common stock? (Ignore taxes and other costs that might be associated with conversion)