Question 1
1. ABC Corporation announced that it will pay a dividend to
all shareholders of record as of Monday, April 2, 2012. It
takes three business days of a purchase for the new owners
of a share of stock to be registered. (6 marks)
a. When is the last day an investor can purchase ABC stock
and still get the dividend payment?
b. When is the ex-dividend day?
II. Roundtree Software is going public using an auction IPO.
The firm has received the following bids:
Assuming Roundtree would like to sell 1.92 million shares
in its IPO, what will the winning auction offer price be? (8
marks)
Price ($) Number of shares
14.80 160,000
14.60 260,000
14.40 500,000
14.20 1,000,000
14.00 1,200,000
13.80 880,000
13.60 420,000
III. Explain some of the differences between a public debt
offering and a private debt offering. (3 marks)
IV. Why do bonds with lower seniority have higher yields than
equivalent bonds with higher seniority? (3marks)