In facing insolvency, a firm may offer prepackaged reorganization which offers its creditors less than what they are owed. However, the creditors may agree to the prepackaged reorganization. Please justify why?
finance
Description
1.
In facing
insolvency, a firm may offer prepackaged reorganization which offers its
creditors less than what they are owed. However, the creditors may agree to the
prepackaged reorganization. Please justify why?
(Total 10 marks)
2.
An
acquirer is offering to takeover a target with an offer price significantly
above the current stock price of the target. Discuss why sometime the target’s
managers still fights with the takeover attempt.
(Total 10 marks)
3. WindCool Bank reports the following balance
sheet and duration information:
|
Assets |
Duration |
Book Value |
Market Value |
|
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|
|
|
|
Overnight Money |
0.0 |
$3 Million |
$3 Million |
|
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|
|
Mortgages |
0.6 |
$7 Million |
$8 Million |
|
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|
|
|
|
Loans |
2.46 |
$18 Million |
$20 Million |
|
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|
|
|
|
2-year Zero-coupon Bond |
?? |
$8.5 Million |
$9 Million |
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|
Liabilities |
Duration |
Book Value |
Market Value |
|
|
|
|
|
|
Checking Accounts |
0.0 |
$9 Million |
$9 Million |
|
|
|
|
|
|
Short-term CD’s |
1.0 |
$16 Million |
$18 Million |
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|
Long-term CD’s |
6.0 |
$8 Million |
$9 Million |
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Equity |
|
$3.5 Million |
$4 Million |
|
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(i) Compute the duration of assets and
liabilities respectively. |
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(7 marks)
(ii)
Advise
whether the assets and liability are well matched for immunity to changing
interest rates.
(6 marks)
(Total 13
marks)
4.
Evaluate
the interpretation of equity ownership as being equivalent to owning a call
option on the assets of the firm.
(Total 10 marks)
5. Below is one future contract
traded on the stock exchange, with corn as the underlying product. We have
access to the closing prices of the future and the spot prices. Suppose
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that
Friday is the delivery time. |
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