Consider a convertible bond as follows: par value = $1,000, coupon rate = 8.00%, market price of convertible bond = $1,100, conversion ratio = 18, straight value of bond = $600, yield to maturity of straight bond = 10%, current price of common stock = $45, dividend per share = $3.00/year. A. What is the favorable income differential per bond (not per share)? B. At what stock price, the realized return from investing in the convertible bond becomes zero? In other words, what is the break-even stock price?
Consider a convertible bond as follows: par value = $1,000, coupon rate = 8.00%, market price of convertible bond = $1,100, conversion ratio = 18, straight value of bond = $600, yield to maturity of straight bond = 10%, current price of common stock = $45, dividend per share = $3.00/year. A. What is the favorable income differential per bond (not per share)? B. At what stock price, the realized return from investing in the convertible bond becomes zero? In other words, what is the break-even stock price?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter8: Basic Stock Valuation
Section: Chapter Questions
Problem 15MC: Assume that Temp Force has a beta coefficient of 1.2, that the risk-free rate (the yield on T-bonds)...
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Consider a convertible bond as follows:
par value = $1,000, coupon rate = 8.00%, market price of convertible bond = $1,100, conversion ratio = 18, straight
A. What is the favorable income differential per bond (not per share)?
B. At what stock price, the realized
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