Given the following information concerning a convertible bond: Principle: $1,000 Coupons: 5 percent Maturity: 15 years Call Price: $1,050 Conversion price: $37 (i.e., 27 shares) Market Price of the Bond: $1040 Common stock: $30 D, What is the premium in terms of stock that the investor pays when he or she purchases the convertible bond instead of the stock?D E, Nonconvertible bonds are selling with a yield to maturity of 7 percent If this bond lacked the conversion feature, what would the approximate price of the bond be? F, What is the premium in terms of debt that the investor pays when he or she purchases the convertible bond instead of a nonconvertible bond? G, What is the probability that the corporation will call this bond? H, Why are investors willing to pay the premiums mentioned in questions d and f?
Given the following information concerning a convertible bond: Principle: $1,000 Coupons: 5 percent Maturity: 15 years Call Price: $1,050 Conversion price: $37 (i.e., 27 shares) Market Price of the Bond: $1040 Common stock: $30 D, What is the premium in terms of stock that the investor pays when he or she purchases the convertible bond instead of the stock?D E, Nonconvertible bonds are selling with a yield to maturity of 7 percent If this bond lacked the conversion feature, what would the approximate price of the bond be? F, What is the premium in terms of debt that the investor pays when he or she purchases the convertible bond instead of a nonconvertible bond? G, What is the probability that the corporation will call this bond? H, Why are investors willing to pay the premiums mentioned in questions d and f?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
Question
Please dont answer in excel, im not familiar with that yet, equations are great or if the problem merits a worded answer, thank you)
Given the following information concerning a convertible bond:
- Principle: $1,000
- Coupons: 5 percent
- Maturity: 15 years
- Call Price: $1,050
- Conversion price: $37 (i.e., 27 shares)
- Market Price of the Bond: $1040
- Common stock: $30
- D, What is the premium in terms of stock that the investor pays when he or she purchases the convertible bond instead of the stock?D
- E, Nonconvertible bonds are selling with a yield to maturity of 7 percent If this bond lacked the conversion feature, what would the approximate price of the bond be?
- F, What is the premium in terms of debt that the investor pays when he or she purchases the convertible bond instead of a nonconvertible bond?
- G, What is the probability that the corporation will call this bond?
- H, Why are investors willing to pay the premiums mentioned in questions d and f?
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