Company XYX buys a convertible bond for $7,500,000. The bond has a 5% coupon rate and is also convertible by it's contractual terms into 750,000shares of the issuer's common stock, which are publicly traded. Company XYZ determines that the conversion option is an embedded derivative as itwould meet the definition of a derivative it it were freestanding. In addition, Company XYZ has determined that the features of the conversion optionare not clearly and closely related to its debt host. The derivative has a fair value of $750,000 at inception.. The company also has determined that thebond instrument will be classified as a trading debt security. Which of the following entries would be approriate for the company to record upon thepurchase of his security.?Dr. Debt security-tradingDr. Derivative financial instrumentCr. CashDr. Debt security-tradingCr. CashDr. Debt security-tradingDr. Derivative Financial InstrumentCr. CashCr. Other Comprehensive IncomeDr. Debt security-tradingDr. Additional Paid-in CapitalCr. Cash$6,750,000$750,000$7,500,000$ 7,500,000$7,500,000$7,500,000$750,000$7,500,000$750,000$6,750,000$750,000$7,500,000

Dr. Debt security-trading $6,750,000Dr. Derivative financial instrument $750,000Cr. Cash…

Answered: Company XYX buys a convertible bond for…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Rupar Financial has an investment in 33,000 bonds of Anand Company that Rupar accounts for as a security available-for-sale. Anand bonds are publicly traded, and The Wall Street Journal quotes a price for those bonds of $14 per bond, but Rupar believes the market does not appreciate the full value of the Anand bonds and that a more accurate price is $24 per bond. Rupar should carry the Anand investment on its balance sheet at: Multiple Choice $627,000, the midpoint of Nichols's range of reasonably likely valuations of Elliott. $792,000. $462,000. Either $462,000 or $792,000, as either are defensible valuations.
Maple Aircraft has issued a 4¾% convertible subordinated debenture due 3 years from now. The conversion price is $47 and the debenture is callable at 102.75% of face value. The market price of the convertible is 91% of face value, and the price of the common is $41.50. Assume that the value of the bond in the absence of a conversion feature is about 65% of face value. 7. By how much does the common have to rise after three years to justify conversion? This is the third part of my first submitted questions. please explain in full detail. Thank you.
A convertible bond is selling for $800. It has 10 years to maturity, a $1000 face value, and a 10% coupon paid semi-annually. The conversion price, specified at the time the convertible bond is issued, is $50 per share [in other words, if one bond is converted, the number of shares obtained in return equals the face value of the bond divided by this conversion price]. Non-convertible bonds issued by the same firm with the same face value, term to maturity and coupon are priced to yield an effective semi-annual return of 7.2%. The stock currently sells for $31.375 per share. a) What is the value of the convertible bond considered as a straight bond? b) If the bond is converted to shares, how many shares are equivalent to the convertible bond given its face value? What is the value of that share portfolio?
Breuer Investment's convertible bonds have a $1,000 par value and a conversion price of $45 a share. What is the convertible issue's conversion ratio? Round your answer to two decimal places.
1. (7 marks) A stock XYZ is quoted 1015. Two counterparties agree to enter into a forward contract maturing at T = 6 months. Here are the possible values of XYZ, at maturity. XYZ at T=6 months XYZ Forward Long Short 1000 1015 1020 1030 1080 (A) Find the possible values of the payoff for the buyer and for the seller of the forward and sketch a graph of the payoffs. (3.5 marks) (B) We know that spot price at expiration can be duplicated according to Forward + Zero Coupon bond = Spot Price at Maturity. Find the possible values of the zero coupon bond. What can you say about the risk associated with this bond? (3.5 marks)
es Vital Silence Corporation has just issued a 30-year callable, convertible bond with a coupon rate of 6.3 percent and annual coupon payments. The bond has a conversion price of $93.30. The company's stock is selling for $27.70 per share. The owner of the bond will be forced to convert if the bond's conversion value is ever greater than or equal to $1,130. The required return on an otherwise identical nonconvertible bond is 7.3 percent. Assume a par value of $1,000. a. What is the minimum value of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. If the stock price were to grow by 10.5 percent per year forever, how long would it take for the bond's conversion value to exceed $1,130? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Minimum price b. Number of years
Which type of security does it refer to? “First pay two times the Original Purchase Price on each share of Series A Preferred. The balance of any proceeds shall be distributed pro rata to holders of Common Stock.”
Considera put contract onaT bondwith an exercise price of $101 16/32. The contract represents $1,000,000 of bond principal and had a premium of $750. The actual T bond price falls to $95 16/32 at expiration. What is the gain or loss on the position?
All bonds considered below have a face value of $1000. The two-year zero-coupon bond is trading at $905.13 while the two-year bond with annual coupon rate 7% is trading at $1035.9. In the absence of arbitrage, what is the fair price of the one-year zero-coupon bond?
You purchase a $100,000 bond futures contract at 96.5. a) Assume that the bond futures price falls to 94. What is your gain/loss? b) Assume that the bond futures price rises to 98. What is your gain/loss?

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