Given the information below, answer the following questions. ? A convertible bond has the following features: Principal $1,000 Maturity date 20 years Interest $80 (8% coupon) Call price $1,050 Exercise price $65 a share ? a. The bond may be converted into how many shares? ? b. If comparable non-convertible debt offered an annual yield of 12 percent, what would be the value of this bond as debt? ? c. If the stock were selling for $52, what is the value of the bond in terms of stock? ? d. Would you expect the bond to sell for its value as debt (i.e., the value determined in b) if the
price of the stock were $52? ? e. If the price of the bond were $960, what are the premiums paid over the bond's value as stock and its value as debt? ? f. If the price of the stock were $35, what would be the minimum price of the bond? ? g. What is the probability that the bond will be called when the price of the stock is $52? ? h. If the price of the stock rose to $73, what would happen to the price of the bond? ? i. If the price of the stock were $73, what would the investor receive if the bond were called?
What will be an ideal response?
a. Number of shares: $1,000/$65 = 15.385 shares?b. Value of the bond as debt (assuming annual payments): $80(7.470) + $1,000(.104) = $701.60? (PV = ?; N = 20; I = 12; PMT = 80, and FV = 1000. PV = -701.22.)?c. Value of the bond as stock: 15.385 x $52 = $800?d. The bond would not sell for $701.60 but for at least $800, its value as stock.?e. Premium over its value as stock: $960 ? $800 = $160Premium over its value as debt: $960 ? $701.60 = $258.40?f. If the price of the stock were $35, the value of the bond as stock would be $35 x 15,385 = $538.48. The bond would sell for at least its value as debt ($701.60).?g. The value of the bond as stock would be $800. No one would convert the bond if it were called; they would accept the call price instead ($1,050). Thus there is no reason to expect the firm to call the bond.?h. The value of the bond as stock is $73 x 15.385 = $1,123.11; the bond's value would rise to at least $1,123.11.?i. Since the bond is worth $1,123.11 in terms of stock, the holders would convert the bond. If they did not convert the bond, they would suffer a loss as they would receive only the call price ($1,050).
You might also like to view...
The wisest approach to understanding and learning about leadership is ______.
a. by reflecting on one’s own leadership experiences b. by reflecting on one’s own leadership, management, and life experiences c. by following someone who explains their own leadership experiences d. by taking into account the experiences of others, as well as what systematic research has revealed
During the month, Kimura Manufacturing incurred (not paid) $47,000 in direct labor costs in Department 1, $26,000 direct labor costs in Department 2, and $3500 of indirect labor costs. The summary journal entry to record these transactions includes a ________. Process costing is used.
A) credit to Manufacturing Overhead for $3500 B) debit to Work-in-Process Inventory for $73,000 C) credit to Wages Payable for $73,000 D) debit to Work-in-Process Inventory—Department 2 for $26,000
Which of the following is a responsibility that is common to the managers of cost, profit, and investment centers?
A) generating revenues B) generating profits C) managing the invested capital D) controlling costs
The business decisions made by the sales department include potential customer data, sales report data, commission data, and customer support data.
Answer the following statement true (T) or false (F)