Tulsa Drilling Company has $1.8 million in 10 percent convertible bonds outstanding. Each bond has a $1,000 par value. The conversion ratio is 30, the stock price is $34, and the bonds mature in 10 years. The bonds are currently selling at a conversion premium of $60 over the conversion value. Use Appendix B and Appendix D as an approximate answer, but calculate your final answer using the formula and financial calculator methods. a. Today, one year later, the price of Tulsa Drilling Company common stock has risen to $44. What would your rate of return be if you had purchased the convertible bond one year ago and sold it today? Assume that on the date of sale, the conversion premium has shrunk from $60 to $10. (Hint: Don't forget to include the interest payment for the first year) (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Rate of return % b-1. Assume the yield on similar nonconvertible bonds has fallen to 6 percent at the time of sale. What would the pure bond value be at that point? (Use semiannual analysis.) (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Tulsa Drilling Company has $1.8 million in 10 percent convertible bonds outstanding. Each bond has a $1,000 par value. The conversion ratio is 30, the stock price is $34, and the bonds mature in 10 years. The bonds are currently selling at a conversion premium of $60 over the conversion value. Use Appendix B and Appendix D as an approximate answer, but calculate your final answer using the formula and financial calculator methods. a. Today, one year later, the price of Tulsa Drilling Company common stock has risen to $44. What would your rate of return be if you had purchased the convertible bond one year ago and sold it today? Assume that on the date of sale, the conversion premium has shrunk from $60 to $10. (Hint: Don't forget to include the interest payment for the first year) (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Rate of return % b-1. Assume the yield on similar nonconvertible bonds has fallen to 6 percent at the time of sale. What would the pure bond value be at that point? (Use semiannual analysis.) (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
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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Tulsa Drilling Company has $1.8 million in 10 percent convertible bonds outstanding. Each bond has a $1,000 par value. The
conversion ratio is 30, the stock price is $34, and the bonds mature in 10 years. The bonds are currently selling at a conversion
premium of $60 over the conversion value. Use Appendix B and Appendix D as an approximate answer, but calculate your final
answer using the formula and financial calculator methods.
a. Today, one year later, the price of Tulsa Drilling Company common stock has risen to $44. What would your rate of return be if you
had purchased the convertible bond one year ago and sold it today? Assume that on the date of sale, the conversion premium has
shrunk from $60 to $10. (Hint: Don't forget to include the interest payment for the first year) (Do not round intermediate calculations.
Input your answer as a percent rounded to 2 decimal places.)
Rate of return
b-1. Assume the yield on similar nonconvertible bonds has fallen to 6 percent at the time of sale. What would the pure bond value be
at that point? (Use semiannual analysis.) (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Pure bond value
b-2. Would the pure bond value have a significant effect on valuation then?
Ⓒ Yes
O No
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Transcribed Image Text:Ic
raw
Tulsa Drilling Company has $1.8 million in 10 percent convertible bonds outstanding. Each bond has a $1,000 par value. The
conversion ratio is 30, the stock price is $34, and the bonds mature in 10 years. The bonds are currently selling at a conversion
premium of $60 over the conversion value. Use Appendix B and Appendix D as an approximate answer, but calculate your final
answer using the formula and financial calculator methods.
a. Today, one year later, the price of Tulsa Drilling Company common stock has risen to $44. What would your rate of return be if you
had purchased the convertible bond one year ago and sold it today? Assume that on the date of sale, the conversion premium has
shrunk from $60 to $10. (Hint: Don't forget to include the interest payment for the first year) (Do not round intermediate calculations.
Input your answer as a percent rounded to 2 decimal places.)
Rate of return
b-1. Assume the yield on similar nonconvertible bonds has fallen to 6 percent at the time of sale. What would the pure bond value be
at that point? (Use semiannual analysis.) (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Pure bond value
b-2. Would the pure bond value have a significant effect on valuation then?
Ⓒ Yes
O No
< Prev
10 of 10
Next
TEKSTFEES
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