- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 2. Fixed-Income Cash Flows and Types
- Subject 2. Fixed-Income Contingency Provisions
CFA Practice Question
A bond indenture specifies that the 8% issue of Canton Corp. due June, 2020 is redeemable at par value in the event of a merger. The bond is callable after December 31, 2018 at 103. In the event of a merger between Canton Corp. and a suitor company, owners of this issue will receive ______.
B. par value
C. 103% of par value
A. the market price
B. par value
C. 103% of par value
Correct Answer: B
Owners of the issue will receive par value because of the provision specified in the bond indenture.
User Contributed Comments 7
| User | Comment |
|---|---|
| danlan | What is the par value specified in bond indenture? |
| mtcfa | It must be 100. |
| steved333 | It doesn't matter. The indenture says par. Par is par. |
| krisscfa | In the event of a merger between Canton Corp and a suitor company owners of this issue will receive.... Canton Corp and a suitor company will pay the bond holders the PAR Value...and the bond holders are not the owners of the company...makes sense?? |
| krisscfa | oops owners of this issue...correct |
| MattNYC | The call is also specified in the bond indenture. The question is really very simple, and the 103 call is not even relevant. I HATE these!! |
| alejandroc | Canton does have the option to call at 103%. But it's better for Canton to repay at par value! |