Vernon Glass Company has $30 million in 10 percent, $1,000 par value convertible bonds outstanding. The conversion ratio is 40, the stock price is $18, and the bond matures in 25 years. The bonds are currently selling at a conversion premium of $45 over their conversion value. If the price of the common stock rises to $24 on this date next year, what would your rate of return be if you bought a convertible bond today and sold it in one year? Assume on this date next year, the conversion premium has shrunk from $45 to $20. (Hint: Calculate rate of return as (Future bond price - Current bond price + Interest earnings) / Current bond price)) (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Rate of return %

Vernon Glass Company has $30 million in 10 percent, $1,000 par value convertible bonds outstanding. The conversion ratio is 40, the stock price is $18, and the bond matures in 25 years. The bonds are currently selling at a conversion premium of $45 over their conversion value. If the price of the common stock rises to $24 on this date next year, what would your rate of return be if you bought a convertible bond today and sold it in one year? Assume on this date next year, the conversion premium has shrunk from $45 to $20. (Hint: Calculate rate of return as (Future bond price - Current bond price + Interest earnings) / Current bond price)) (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Rate of return %

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

See similar textbooks

Similar questions

A well-known industrial firm has issued $1000 bonds with a 3% coupon interest rate paid semiannually. The bonds mature 10 years from now. From the financial pages of your newspaper you learn that the bonds may be purchased for $800 each ($795 for the bond plus a $5 sales commission). What nominal and effective annual rate of return would you receive if you purchased the bond now and held it to maturity 10 years from now?
You bought one of Great White Shark Repellant Co.'s 7.4 percent coupon bonds one year ago for $1,041. These bonds make annual payments and mature 20 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 6 percent. The bonds have a par value of $1,000. If the inflation rate was 4 percent over the past year, what was your total real return on investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
A major manufacturer is reevaluating its bonds since it is planning to issue a new bond in the current market. The firm's outstanding bond issue has 7 years remaining till maturity. The bonds were issued with an 8 percent coupon rate (paid quarterly) and selling at par value. The required rate of return is 10 percent. What is the current value of these securities?
Today you buy ten zero-coupon bonds which will mature in exactly 5 years. Each of these ten bonds has a face value of $100. The price you pay today for each of these bonds is $82. Assume a year goes by. Now there are only 4 years left before these bonds mature. You sell these bonds in the market for $75 per bond. What is the return you have realized on your investment in these bonds? -7.00% -9.26% -8.54% We do not have sufficient information about interest rates to calculate this answer. -9.33%
You bought one of Great White Shark Repellant Company's 8 percent coupon bonds one year ago for $1,044. These bonds make annual payments and mature 13 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 6 percent. The bonds have a par value of $1,000. If the inflation rate was 3.4 percent over the past year, what was your total real return on investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Total real return %
Silver Run Inc. has 6% coupon bonds outstanding that pay interest semiannually and have 15 years remaining until maturity. They carry a face value of $1000. These bonds are currently selling for $1143. What price should these bonds sell for two years from now if their yield drops by 100 basis points over the two years?
A firm has some $1,000 par value bonds outstanding that pay a 12 percent interest rate. The bonds pay interest yearly and have 10 years until they mature. If bonds that bear similar risk currently earn 8 percent, how much will the firm's bond sell for today? A) $1,000 B) $805.20 C) $851.50 D) $1,268.20
You have been hired to value a new 20-year callable, convertible bond. The bond has an 8 percent coupon rate, payable annually. The conversion price is $50, and the stock currently sells for $30. The stock price is expected to grow at 14.8698 percent per year. The bond is callable at $1,100; but based on prior experience, it will not be called unless the conversion value is $1,200. The required return on this bond is 10 percent. What would be the expected rate of return to the investor?

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS