Entity A issues $100 million 7% cumulative preference shares. Dividends are payable quarterly subject to the availability of distributable profits. Issue costs are insignificant. The preference shares are puttable at par to Entity A for cash if interest rates move by 150 basis points. Any dividend that remains accumulated and not paid becomes payable when the shares are put to Entity A. Can the put option be separated from the bonds?

Entity A issues $100 million 7% cumulative preference shares. Dividends are payable quarterly subject to the availability of distributable profits. Issue costs are insignificant. The preference shares are puttable at par to Entity A for cash if interest rates move by 150 basis points. Any dividend that remains accumulated and not paid becomes payable when the shares are put to Entity A. Can the put option be separated from the bonds?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section: Chapter Questions

Problem 17P

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