Question #$1.$ Many businesses issue loan notes, which carry the right for holders to convert them into ordinary shares in the same business at a later date. Why might a business choose to issue convertible loan notes rather than make an issue of equity in the first place?

Question #$2.$ Most businesses, particularly larger ones, have outstanding claims $($financial obligations$)$

of a wide variety of types from a wide variety of claimants at any given moment. Why is there this diversity?

Question #$3.$ Polecat plc has $18$ million $$0\mathrm{.}50$ ordinary shares in issue. The current stock market

value of these is $$1\mathrm{.}70$ per share. The directors have decided to make a one$-$for$-$three

rights issue at $$1\mathrm{.}25$ each. Julie owns $3,000$ Polecat ordinary shares.

Assuming that the rights issue will be the only influence on the share price:

$($a$)$ What, in theory, will be the ex$-$rights price of the shares $($that is$,$ the price of the

shares once the rights issue has taken place$)?$

$($b$)$ For how much, in theory, could Julie sell the $$right$$ to buy one share?

$($c$)$ Will it matter to Julie if she allows the rights to lapse $($that is$,$ she does nothing$)?$