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Fifteen years ago, Roop Industries sold $400 million of convertible bonds. The bonds had. a 40-year maturity, a 5.75% coupon rate, and paid interest annually. They were sold at their $1,000 par value. The conversion price was set at $62.75, and the common stock price was $55 per share. The bonds were subordinated debentures and were given an A rating; straight nonconvertible debentures of the same quality yielded about 8.75% at the time Roop's bonds were issued. a. Calculate the premium on the bonds-that is, the percentage excess of the conversion price over the stock price at the time of issue. b. What is Roop's annual before-tax interest savings on the convertible issue versus a straight-debt issue? C. At the time the bonds were issued, what was the value per bond of the conversion

Fifteen years ago, Roop Industries sold $400 million of convertible bonds. The bonds had. a 40-year maturity, a 5.75% coupon rate, and paid interest annually. They were sold at their $1,000 par value. The conversion price was set at $62.75, and the common stock price was $55 per share. The bonds were subordinated debentures and were given an A rating; straight nonconvertible debentures of the same quality yielded about 8.75% at the time Roop's bonds were issued. a. Calculate the premium on the bonds-that is, the percentage excess of the conversion price over the stock price at the time of issue. b. What is Roop's annual before-tax interest savings on the convertible issue versus a straight-debt issue? C. At the time the bonds were issued, what was the value per bond of the conversion

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
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Fifteen years ago, Roop Industries sold $400 million of convertible bonds. The bonds had. a 40-year maturity, a 5.75% coupon rate, and paid interest annually. They were sold at their $1,000 par value. The conversion price was set at $62.75, and the common stock price was $55 per share. The bonds were subordinated debentures and were given an A rating; straight nonconvertible debentures of the same quality yielded about 8.75% at the time Roop's bonds were issued. a. Calculate the premium on the bonds-that is, the percentage excess of the conversion price over the stock price at the time of issue. b. What is Roop's annual before-tax interest savings on the convertible issue versus a straight-debt issue? C. At the time the bonds were issued, what was the value per bond of the conversion feature?
Transcribed Image Text:Fifteen years ago, Roop Industries sold $400 million of convertible bonds. The bonds had. a 40-year maturity, a 5.75% coupon rate, and paid interest annually. They were sold at their $1,000 par value. The conversion price was set at $62.75, and the common stock price was $55 per share. The bonds were subordinated debentures and were given an A rating; straight nonconvertible debentures of the same quality yielded about 8.75% at the time Roop's bonds were issued. a. Calculate the premium on the bonds-that is, the percentage excess of the conversion price over the stock price at the time of issue. b. What is Roop's annual before-tax interest savings on the convertible issue versus a straight-debt issue? C. At the time the bonds were issued, what was the value per bond of the conversion feature?
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