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? 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?

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
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(Please answer in an equation rather than excel, i dont know excel yet)

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?
  • 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? 
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