Problem 24-10 Convertible Bonds Vital Silence Corporation has just issued a 30-year callable, convertible bond with a coupon rate of 6.1 percent and annual coupon payments. The bond has a conversion price of $94.30. The company's stock is selling for $27.50 per share. The owner of the bond will be forced to convert if the bond's conversion value is ever greater than or equal to $1,110. The required return on an otherwise identical nonconvertible bond is 7.1 percent. Assume a par value of $1,000. a. What is the minimum value of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. If the stock price were to grow by 11.2 percent per year forever, how long would it take for the bond's conversion value to exceed $1,110? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Minimum price b. Number of years
Problem 24-10 Convertible Bonds Vital Silence Corporation has just issued a 30-year callable, convertible bond with a coupon rate of 6.1 percent and annual coupon payments. The bond has a conversion price of $94.30. The company's stock is selling for $27.50 per share. The owner of the bond will be forced to convert if the bond's conversion value is ever greater than or equal to $1,110. The required return on an otherwise identical nonconvertible bond is 7.1 percent. Assume a par value of $1,000. a. What is the minimum value of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. If the stock price were to grow by 11.2 percent per year forever, how long would it take for the bond's conversion value to exceed $1,110? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Minimum price b. Number of years
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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Transcribed Image Text:Problem 24-10 Convertible Bonds
Vital Silence Corporation has just issued a 30-year callable, convertible bond with a
coupon rate of 6.1 percent and annual coupon payments. The bond has a conversion
price of $94.30. The company's stock is selling for $27.50 per share. The owner of the
bond will be forced to convert if the bond's conversion value is ever greater than or
equal to $1,110. The required return on an otherwise identical nonconvertible bond is 7.1
percent. Assume a par value of $1,000.
a. What is the minimum value of the bond? (Do not round intermediate calculations
and round your answer to 2 decimal places, e.g., 32.16.)
b. If the stock price were to grow by 11.2 percent per year forever, how long would it take
for the bond's conversion value to exceed $1,110? (Do not round intermediate
calculations and round your answer to 2 decimal places, e.g., 32.16.)
a. Minimum price
b. Number of years
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