ave a convertible bond with a par value of 100,000 with a 10% coupon. It can be converted into shares at a conversion price of 5,000€. The current price is of 4,300€. If the dividends of the share are currently 200€, and if these grow at a rate of 6% per year, would you, as a bondholder, convert or not in 5 years time? Suppose that the share price coincides with its intrinsic value/objective pric

ave a convertible bond with a par value of 100,000 with a 10% coupon. It can be converted into shares at a conversion price of 5,000€. The current price is of 4,300€. If the dividends of the share are currently 200€, and if these grow at a rate of 6% per year, would you, as a bondholder, convert or not in 5 years time? Suppose that the share price coincides with its intrinsic value/objective pric

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 8MC: Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for...

See similar textbooks

Related questions

Q: Suppose you purchase a 10-year bond with 6.4% annual coupons. You hold the bond for four years, and…

A: A bond pays regular coupons over the period of investment along with par value at the end of the…

Q: Suppose you purchase a 10-year bond with 6.64% annual coupons. You hold the bond for 4 years, and…

A: Annual rate of return:The annual rate of return summarises an investment's financial performance…

Q: Suppose you purchase a 10-year bond with 6.6% annual coupons. You hold the bond for four years,…

A: A bond is a kind of debt security issued by the government and private companies for raising funds…

Q: Today is 31 Dec 2022, and you see a 5 year bond with 5% annual coupon maturing on 31 Dec 2027,…

A: The price of a bond can even change with a small single basis point. This change is an interest rate…

Q: Suppose you purchase a 10-year bond with 6.3% annual coupons. You hold the bond for four years, and…

A: Data given: FV=$100 Coupon rate=6.3% n=10 year

Q: . You own a convertible bond that pays annually, has a 4% yield, 7.5% coupon rate, and matures in 10…

A: To make bonds attractive, some bonds have option of converting into stocks at expiration and…

Q: Suppose you purchase a 10-year bond with 6.1 % annual coupons. You hold the bond for four years, and…

A: A bond is a debt market security that promises the investor a fixed set of payments until its…

Q: Assume that you wish to purchase a 30-year bond that has a maturity value of P1,000 and a coupon…

A: Maximum of the bonds = Present value of principal + Present value of interest payments where,…

Q: 3. Consider a five year $1000 semiannual coupon bond with a 5% coupon rate. If the bond is current…

A: Yield to maturity is indeed the overall rate of return received by a bond after it has made all…

Q: If you hold the bond to maturity, what is your annual rate of return?Assuming that you hold the…

A: Zero coupon bonds are those bonds that are purely discounted based on rates, which means there is no…

Q: ssuming the market rate is still 10%, what price would a second investor pay the first investor on…

A: Bonds are paid periodic interest on the bonds and they are paid based on the specified interest rate…

Q: Suppose you buy an annual coupon bond with a coupon rate of 6% for $915. The bond has 10 years to…

A: Yield to maturity is the rate of return realized on a bond when the bond is held till the maturity…

Q: 4. You bought a 10-year, 5% coupon bond for $1,000 and sold it 1 year later for $1,100. What is…

A: The holding period rate of return would be calculated by using the following formula:Rate of…

Q: Ma1. Please give only typed answer. You are considering buying a municipal bond with a 10-year…

A: A Bond refers to a concept that is defined as an instrument that represents the loan being made by…

Q: Suppose you purchase a 30-year Treasury bond with a 6% annual coupon, initially trading at par. In…

A: The calculation and explanation provided in excel sheet in step 2 and formulas is explained in step…

Q: 3.20. Suppose you want to buy a PP&L bond with coupon 18.75% that matures in 5 years, and pays…

A: Following details are given: Face Value of bond = $1000 Coupon rate = 18.75% Time period = 5 years…

Q: Suppose an investor is considering the purchase of a stock or a convertible bond of COMPANY Z. The…

A: A convertible bond is a type of bond that gives the bondholder the option to convert the bond into a…

Q: Suppose you purchase a 30-year Treasury bond with a 5% annual coupon, initially trading at par. In…

A: Computation of IRR of bond if sold at year-10, and if hold till maturity, shown in below sheet:Face…

Q: suppose you purchase a 30-year Treasury bond with a 5% annual coupon, initially trading at par. In…

A: Given:

Q: 1. Suppose you purchase bond that has a coupon of $75, face value of S1,000, and current price of…

A: A financial instrument that does not affect the ownership of the common shareholders or management…

Q: Suppose you purchase a 10-year bond with 6% annual coupons. You hold the bond for four years, and…

A: A bond is a debt issued by the company whereby it has to pay regular coupons to the investor and…

Q: Suppose you purchase a ten-year bond with 12% annual coupons. You hold the bond for four years and…

A: Companies issue bonds as debt instruments. Bond holders get coupons, or interest, from the issuing…

Q: coupons. If you require a return of 3.50% on this instrument, how much would you offer to pay for it…

A: The price at which a bond is currently traded on the market is its market value. It represents the…

Q: You have the choice between a convertible bond and a non-convertible bond for investment. Both offer…

Q: 1. What is the straight value of that bond? 2. What is the minimum value of the convertible bond? 3.…

A: Straight Value of the Bond: The straight value (or intrinsic value) of a bond is the present value…

Question

12.

You have a convertible bond with a par value of 100,000 with a 10% coupon. It can

be converted into shares at a conversion price of 5,000€. The current price is of 4,300€.

If the dividends of the share are currently 200€, and if these grow at a rate of 6% per

year, would you, as a bondholder, convert or not in 5 years time? Suppose that the share

price coincides with its intrinsic value/objective price and that the re is 10.93%.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: Define=convertible bonds

VIEW

Step 2: Calculation of price of stock

VIEW

Solution

VIEW

Step by step

Solved in 3 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

1. You own a convertible bond that pays annually, has a 4% yield, 7.5% coupon rate, and matures in 10 years. The conversion ratio is 20. The stock price is $43. What is your gain or loss if you convert? What is the minimum stock price to convert this bond? Answer: loss of 423.88 / convert if stock price is greater than 64.19
5. (a) Suppose that you have purchased a 5-year zero-coupon bond with face value of$1000 and a price of $800. If you hold the bond to maturity, what is your annualrate of return? (b) Now suppose you have purchased a 5-year bond with face value of $1000, a 10%annual coupon, and a price of $900. Assuming that you hold the bond to maturity,is the IRR greater or less than the return on the bond in part (a)?
NUMERICAL QUESTION: Suppose that an investor is considering the purchase of a stock or a convertible bond of COMPANY S. The stock of the company can be purchased at €20. The following information is for the convertible bond. The bond has a face value of €1,000, an annual coupon rate of 4% (coupons are paid every six months) and a maturity of 3 years. Similar bonds are selling to yield 12% annually. The current market price of the convertible bond is €920. The Time left 1:11:10 ratio is 45. 1. What is the straight value of that bond? 2. What is the minimum value of the convertible bond? 3. Assume that the investor decided to purchase the convertible bond and that 2 months later, the price of the stock fell to €16. What is the return to the investor from having bought the convertible bond? Remember to input your answer without the % sign. For instance, an answer equal to 1.52% should be entered as 1.52.
Assume that you wish to purchase a 30-year bond that has a maturity value of P1,000 and a coupon interest rate of 9.5%, paid semiannually. If you require a 6.75% rate of return on this investment, what is the maximum price that you should be willing to pay for this bond? O P675 O P1,450 O P1.352 O P1,111
Correct Answer
suppose you purchase a 30-year Treasury bond with a 5% annual coupon, initially trading at par. In 10 years' time, the bond's yield to maturity has risen to 6% (EAR). (Assume $100 face value bond.) a. If you sell the bond now, what internal rate of return will you have earned on your investment in the bond? b. If instead you hold the bond to maturity, what internal rate of return will you earn on your initial investment in the bond? c. Is comparing the IRRs in (a) versus (b) a useful way to evaluate the decision to sell the bond? Explain. 1. If you sell the bond now, what internal rate of return will you have earned on your investment in the bond? The IRR of the bond is nothing%. (Round to two decimal places.)
You are considering the purchase of a coupon bond with a face value of $1,000, which matures in 14 years, and pays 4.15% (annual) coupons. If you require a return of 3.50% on this instrument, how much would you offer to pay for it today? [Present the answer rounded to two decimal places, e.g. 1035.16]
Suppose you purchase a 30-year Treasury bond with a 5% annual coupon, initially trading at par. In 10 years' time, the bond's yield to maturity has risen to 7% (EAR). (Assume $100 face value bond.) a. If you sell the bond now, what internal rate of return will you have earned on your investment in the bond? b. If instead you hold the bond to maturity, what internal rate of return will you earn on your initial investment in the bond? c. Is comparing the IRRs in (a) versus (b) a useful way to evaluate the decision to sell the bond? Explain. a. If you sell the bond now, what internal rate of return will you have earned on your investment in the bond? The IRR of the bond is %. (Round to two decimal places.)
Suppose you purchase a 10-year bond with 6.64% annual coupons. You hold the bond for 4 years, and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 5.17% when you purchased and sold the bond, a. what cash flows will you pay and receive from your investment in the bond per $100 face value? b. what is the annual rate of return of your investment? a. What cash flows will you pay and receive from your investment in the bond per $100 face value? The cash flows from the investment are shown in the following timeline: (Round to the best choice below.) OA. Years Cash Flows O B. Years C. Years Cash Flows Cash Flows - $114.06 O D. Years 0 Cash Flows $107.42 0 0 - $111.26 0 $111.26 1 $6.64 1 $6.64 1 $6.64 1 $6.64 2 $6.64 2 + $6.64 2 + $6.64 2 + $6.64 3 $6.64 3 $6.64 3 $6.64 3 $6.64 b. What is the annual rate of return of your investment? The annual rate of return of your investment is %. (Round to two decimal places.) 4 $114.06 4 $107.42 4 $114.06 4…
1. Suppose you purchase bond that has a coupon of $75, face value of S1,000, and current price of $1,100. What is your coupon rate? What is your current Save Answer yield? 2. Suppose you purchase a bond with a coupon of $50 for $1,010. You sell it one year later for $900. What rate of return did you carn?
Suppose you purchase a 30-year Treasury bond with a 6% annual coupon, initially trading at par. In 10 years’ time, the bond’s yield to maturity has risen to 7% (EAR).a. If you sell the bond now, what internal rate of return will you have earned on your investment in the bond?b. If instead you hold the bond to maturity, what internal rate of return will you earn on your investment in the bond?c. Is comparing the IRRs a useful way to evaluate the decision to sell the bond?
What is the solution and working