Given the following information concerning a convertible bonds: Principal$1,000Coupon5%Maturity15 yearsCall price$1,050Conversion price$37 (i.e., 27 shares)Market price of the common stock$32Market price of the bond$1,040F.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.If the price of the common stock should double, would the price of the convertible bond double? Briefly explain your answer?H.If the price of the common stock should decline by 50 percent, would the price of the convertible bond decline by the same percentage? Briefly explain your answer.I.What is the probability that the corporation will call this bond?J.Why are investors willing to pay the premiums mentioned in parts (d) and (f)

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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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A$1,000 face value convertible bond has a conversion ratio of 31 and is about to mature. Ignoring any transaction costs, what price must the stock surpass in order for you to convert? The required price per share will be $ (Round to the nearest cent.)
Last one is wrong. Only type answer please. I will rate accordingly
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The price of a bond is 900$, if the coupon rate decreased, the price of this bond will? a. Remain the same. b. Increase. c. Decrease.
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 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? (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? 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?) (dont need D and F answers only G. and H. need help with please dont put in excel i dontunderstand that stuff yet equations and worded answers please)
NUMERICAL QUESTION: Suppose that an investor is considering the purchase of a stock or a convertible bond of COMPANY S. The stock of the company can be purchased at €20. The following information is for the convertible bond. The bond has a face value of €1,000, an annual coupon rate of 4% (coupons are paid every six months) and a maturity of 3 years. Similar bonds are selling to yield 12% annually. The current market price of the convertible bond is €920. The Time left 1:11:10 ratio is 45. 1. What is the straight value of that bond? 2. What is the minimum value of the convertible bond? 3. Assume that the investor decided to purchase the convertible bond and that 2 months later, the price of the stock fell to €16. What is the return to the investor from having bought the convertible bond? Remember to input your answer without the % sign. For instance, an answer equal to 1.52% should be entered as 1.52.
Consider a convertible bond trading at $1,000 with a conversion ratio of 37.383, coupon rate of 9.5%, and par value of $1,000. If the firm's stock trades at $23 and provides an annual dividend of $0.75, what is the premium payback period? 1.81 1.99 2.23 2.09 <-000
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Given the following information concerning a convertible bonds:

Principal	$1,000
Coupon	5%
Maturity	15 years
Call price	$1,050
Conversion price	$37 (i.e., 27 shares)
Market price of the common stock	$32
Market price of the bond	$1,040

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.	If the price of the common stock should double, would the price of the convertible bond double? Briefly explain your answer?
H.	If the price of the common stock should decline by 50 percent, would the price of the convertible bond decline by the same percentage? Briefly explain your answer.
I.	What is the probability that the corporation will call this bond?
J.	Why are investors willing to pay the premiums mentioned in parts (d) and (f)