Vital Silence Corporation has just issued a 30-year callable, convertible bond with a coupon rate of 6.3 percent and annual coupon payments. The bond has a conversion price of $93.30. The company's stock is selling for $27.70 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 $1,130. The required return on an otherwise identical nonconvertible bond is 7.3 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 10.5 percent per year forever, how long would it take for the bond's conversion value to exceed $1,130? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Vital Silence Corporation has just issued a 30-year callable, convertible bond with a coupon rate of 6.3 percent and annual coupon payments. The bond has a conversion price of $93.30. The company's stock is selling for $27.70 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 $1,130. The required return on an otherwise identical nonconvertible bond is 7.3 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 10.5 percent per year forever, how long would it take for the bond's conversion value to exceed $1,130? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

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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Maple Aircraft has issued a 4¾% convertible subordinated debenture due 3 years from now. The conversion price is $47 and the debenture is callable at 102.75% of face value. The market price of the convertible is 91% of face value, and the price of the common is $41.50. Assume that the value of the bond in the absence of a conversion feature is about 65% of face value. 7. By how much does the common have to rise after three years to justify conversion? This is the third part of my first submitted questions. please explain in full detail. Thank you.
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?
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Assets, Incorporated, plans to issue $6 million of bonds with a coupon rate of 7.8 percent, a par value of $1,000, semiannual coupons, and 25 years to maturity. The current market interest rate on these bonds is 7.1 percent. In one year, the interest rate on the bonds will be either 9 percent or 5 percent with equal probability. Assume investors are risk-neutral. a. If the bonds are noncallable, what is the price of the bonds today?
Texas Corporation has a level-coupon bond with a 9% coupon rate and is paid annually. The bond has 20 years to maturitu and face value of RM1,000; similar bonds currently yield 7%. By prior agreement the company will skip the coupon interest payments in years 8,9, and 10. These payment will be repaid, without interest at maturity. Calculat the bond's current value.
Russell Container Company has a $1,000 par value bond outstanding with 30 years to maturity. The bond carries an annual interest payment of $105 and is currently selling for $880 per bond Russell is in a 40 percent tax bracket. The firm wishes to know what the aftertax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield to maturity on the old issue because the risk and maturity date will be similar. (Do not round intermediate calculations. Round the final answers to 2 decimal places.) a. Compute the yield to maturity on the old issue and use this as the yield for the new issue Yield on new issue b. Make the appropriate tax adjustment to determine the aftertax cost of debt. Cost of debt.
ART Vandelay Inc. has two different bonds currently outstanding. Bond A has a face value of $40,000 and matures in 20 years. The bond makes no payment for the first 6 years, pays $2000 semiannually for the subsequent eight years, and finally $2500 semiannually for the last 6 years. Bond B also has a value of $40,000 and matures in 20 years. However, it makes no coupon payments over the life of the bond. If the stated annual interest rate is 12%, compounded semiannually, a. What is the current price of Bond A? b. What is the current price of Bond B?
You have been hired to analyze a new 20-year Callable Convertible Bond. The bond pays a 6% coupon annually, and is selling at par. The conversion price is $150 and the stock is currently selling at $35. The bond is callable at $1,150, but analysts believe that the bond will not be called unless the conversion value reaches $1,250. The YTM of a 20-year non-callable, non-convertible bond is 8.5%. (a) What would be the price of the bond if it did not have the call and conversion features? (b) Would the bond sell at a premium or a discount if it was convertible but not callable? (c) Would the bond sell at a premium or a discount if it was callable but not convertible?
Kebt Corporation's Class Semi bonds have a 15-year maturity and a 7.25% coupon paid semiannually (3.625% each 6 months), and those bonds sell at their $1,000 par value. The firm's Class Ann bonds have the same risk, maturity, nominal interest rate, and par value, but these bonds pay interest annually. Neither bond is callable. At what price should the annual payment bond sell? Do not round your intermediate calculations. a. $988.31 b. $1,000.00 c. $1,035.90 d. $678.87 e. $992.53
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?
The Chauncey Corporation currently has a bond outstanding with a coupon rate of 6 percent and annual payments. The bond is currently selling for $983.04. The bond matures in 11 years and has a par value is $1,000. What is the yield to maturity (YTM) of The Chauncey Company's bonds? a)3.11% b)12.29% c)6.37% d)None of these options are correct e) 6.22%

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