Hilton Hotels Corporation has a convertible bond issue outstanding. Each bond, with a face value of $1,200, can be converted intocommon shares at a rate of 61.2999 shares of stock per $1,200 face value bond (the conversion rate), or $19.5759 per share. Hilton'scommon stock is trading (on the NYSE) at $19.16 per share and the bonds are trading at $1,175.a. Calculate the conversion value of each bond. (Round your answer to 2 decimal places. (e.g., 32.16))b. State whether it is currently profitable for bond holders to convert their bonds into shares of Hilton Hotels common stock.Conversion valueb. Exercise the conversion optiona.

Bond valuation is the process of determining the fair value of a bond. It involves assessing the…

Answered: Hilton Hotels Corporation has a…

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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naru
During the past 2 years Meacham Industries issued three separate convertible bonds. For each of them, calculate the conversion price: A $1,000-par-value bond that is convertible into 10 shares of common stock.
A convertible bond is selling for $800. It has 10 years to maturity, a $1000 face value, and a 10% coupon paid semi-annually. The conversion price, specified at the time the convertible bond is issued, is $50 per share [in other words, if one bond is converted, the number of shares obtained in return equals the face value of the bond divided by this conversion price]. Non-convertible bonds issued by the same firm with the same face value, term to maturity and coupon are priced to yield an effective semi-annual return of 7.2%. The stock currently sells for $31.375 per share. a) What is the value of the convertible bond considered as a straight bond? b) If the bond is converted to shares, how many shares are equivalent to the convertible bond given its face value? What is the value of that share portfolio?
2. Bell Canada issued a $1,000 convertible corporate bond. Each bond is convertible to 22 shares of the firm's common stock. a. What price must common stocks have for the investors to consider converting their bond into common stocks? b. If you owned one of these convertible bonds in Bell Canada, would you convert your bond to common stocks if the stock's price reached the conversion price? Explain your answer.
Mecca Energy Corp. issued a convertible bond on 1 August 20X9. The 10-year, 5% $16,000,000 bond pays interest semi-annually each 31 July and 31 January. At maturity, each $1,000 bond is convertible into 120 common shares. The bond was issued for $16,640,000. Market interest rates were approximately 6%.(PV of $1, PVA of $1, and PVAD of $1.) (Use appropriate factor(s) from the tables provided.)Required:1. Provide the journal entry to record the initial issuance of the bond.
devra
What happens in the case of a bond selling for $1,000 that can be converted to 20 shares of stock that are currently selling for $80 per share?
2) On January 1, 2020, CBT Corp issued 20,000, 20 year, $1,000 bonds. The bonds have an annual coupon of $50, payable on December 31 of each year. Each bond can be convertible in to five common shares. The bonds sold for 120 and it is estimated that the bonds would have sold for 105 if they did not have the convertible option. Required: a. Prepare the journal entry to recognize the bond sale made by CBT on January 1, 2020. b. On January 1, 2023, 2,000 bonds were converted into common shares. Prepare the journal entry to recognize the conversion transaction.
(Issuance and Conversion of Bonds) For each of the unrelated transactions described below,present the entry(ies) required to record each transaction.1. Ehrlich Corp. issued $50,000,000 par value 8% convertible bonds at 102. If the bonds had not been convertible, thecompany’s investment banker estimates they would have been sold at par.2. On October 31, 2021, Ehrlich Corp. called its 10% convertible debenture bonds for conversion. The $60,000,000 parvalue bonds were converted into 600,000 shares of $1 par value common stock. On October 31, there was $155,000of unamortized premium applicable to the bonds, and the company paid an additional $355,000 to the bondholders toinduce conversion of all the bonds. The company records the conversion using the book value method. 3. Ehrlich Corporation issued 2,000 shares of $10 par value common stock upon conversion of 1,000 shares of $50 par value preferred stock. The preferred stock was originally issued at $60 per share. The common stock is…
On 1 January 20x2, Company A issued a convertible bond with principal amount of USD200,000, with maturity date of 31 December 20x3. The proceeds from the convertible bond is USD210,000. The coupon rate was 3% per annum payable at year-end. A similar bond issued by company A, but without the convertible feature had coupon rate of 4% per annum. Requirement Record the journal entries on 1 January 20x2 and 31 December 20x3. show me the calculations

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