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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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.
ABC Corporation has 4,000, 10%, 10-year bonds, face value 1,000, and sold it at 105. Each bond is accompanied by one warrant that permits the bondholder to purchase 20 shares of capital, par 50, at 55 per share, or a total of 80,000 shares. The prevailing market rate of interest for similar bonds without warrants is 12% per annum with which the PV of 1 at 12% for 10 periods is 0.322 and in an ordinary annuity is 5.65 What is the entry to record issuance of the compound instrument and the exercise of the 70% warrants? Assume also the expiration of the 30% warrants and prepare the entry.
Blueing Airways' common stock is currently priced at P39. Its 8 percent convertible debentures issued at their P1,000 par and are currently priced at P1,050. Each debenture can be converted into 25 shares of common stock at any time before 2010. What is the conversion value of the bond? O P1,000 O P900 P1,050 O P975
Warbler's Whistles Inc. capital structure includes the following. Bond A: 23,844 bonds with a 5.5% coupon rate, $1,000 par value, with 18.5 years to maturity, selling for $845.70; the bonds compound semiannually. Bond B: 8,680 bonds with a 0% coupon rate, $1,000 par value, with 6 years to maturity, selling for $790.10; the bonds compound semiannually. Common stock: 1,696,220 shares outstanding, selling for $47.28 per share; the beta is 1.4. The market return is currently 12.68%, and the U.S. T-bill currently returns 3.3%. If the tax rate is 21%, what is the company's weighted average cost of capital (WACC)?
Draiman Corporation has bonds on the market with 23.5 years to maturity, a YTM of 7 percent, a par value of $1,000, and a current price of $1,051. The bonds make semiannual payments. What must the coupon rate be on these bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Oriole Corp. has 18-year bonds outstanding. These bonds, which pay interest semiannually, have a coupon rate of 9.235 percent and a yield to maturity of 7.4 percent. Assume face value is $1,000. Compute the current price of these bonds. (Round answer to 2 decimal places, e.g. 15.25.)
CMS Corporation's balance sheet as of today is as follows: Long-term debt (bonds, at par) Preferred stock Common stock ($10 par) Retained earnings Total debt and equity $10,000,000 2.000.000 10,000,000 4.000.000 $26.000,000 The bonds have a 6.6% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 12%, so the bonds now sell below par. What is the current market value of the firm's debt? Select the correct answer. Oa. $6,900,480 Ob.$6,901,361 Oc$6,899,600 d. $6,903,121 Oe. $6,902,241
Sherwood Forest Products has a convertible bond quoted on the NYSE bond market at 96. (Bond quotes represent the percentage of par value. Thus, 70 represents $700, 80 represents $800, and so on.) It matures in 10 years and carries a coupon rate of 7.00 percent. The conversion ratio is 20, and the common stock is currently selling for $28 per share on the NYSE. a. Compute the conversion premium. (Do not round intermediate calculations and round your answer to 2 decimal places.) Conversion premium b. At what price does the common stock need to sell for the conversion value to be equal to the current bond price? (Do not round intermediate calculations and round your answer to 2 decimal places.) Stock price
Charter Corp. issued1,662 debentures with a $1,000 par value and 6% coupon rate. a. What dollar amount of interest per bond can an investor expect to receive each year from Charter? b. What is Charter's total interest expense per year associated with this bond issue? c. Assuming that Charter pays a 21% corporate tax, what is the company's net after-tax interest cost associated with this bond issue?
On March 1, Wayne Michaels bought 10 bonds from a particular company with a coupon rate of 9.325%. The purchase price was 87.875, and the commission was $9 per bond. Bonds from this particular company pay interest on February 1 and August 1. (a)What is the current yield (as a %) of the bond as of the purchase date? (Round your answer to one decimal place.) (b) What is the total purchase price (in $) of the bonds? (Round your answer to the nearest cent.) (c) If Wayne sold the bonds on November 1 for 92.875, what are the proceeds (in $) from the sale? (Round your answer to the nearest cent.)
Crane Company is about to issue $390,000 of 6-year bonds paying an 12% interest rate, with interest payable annually. The discount rate for such securities is 13%. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) In this case, how much can Crane expect to receive from the sale of these bonds? (Round answer to O decimal places, e.g. 2,575.) Crane can expect to receive $
Waterway Ltd. issued a $1,062,000, 10-year bond dated January 1, 2023. The bond was sold to yield 12% effective interest. The bond paid 10% interest on January 1 and July 1 each year. The company's year-end was December 31, and Waterway followed IFRS. Using 1.factor Tables 2. a financial calculator, or 3. Excel function PV, calculate the amount received for the bond, and any discount or premium on the bond. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1 (Round present value factor calculations to 5 decimal places, eg. 1.25124 and final answers to 0 decimal places eg. 58,971.) Proceeds from sale of bond on bond Date $ $ Prepare the journal entries for above transactions. (Round answers to O decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.…

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