Provide correct answer You are asked to evaluate a five-year, convertible debt offering beingconsidered by management. This offering, effective January 1, 2013, is for $40million. It would be issued at 2% below prevailing interest rates at the time ofissuance and is due on December 31, 2017 (five years after issuance). Theconversion feature of the debt would allow the debt holders to convert each$1,000 of debt into 10 shares of common stock. The issuance costs areexpected to total $200,000, which will primarily comprise attorney andaccounting fees. The reporting entity follows IFRS. Assume the prevailinginterest rate for the non-convertible bonds is 6% at the beginning of the year.How much interest expense is to be recognized and recorded for the year2014?

Step 1: Determine the interest rate: 6% prevailing rate minus 2% = 4%.Step 2: Calculate the annual…

Answered: You are asked to evaluate a five-year,…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 6P

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In December 2022, Pronghorn Corp. decided to issue 100,000 convertible bonds, maturing in December 2032. The bonds have a face value of $1,000 and promise an annual coupon payment of 6.00 percent. The conversion ratio of these bonds is 25.86, and it is known that Pronghorn Corp's common shares were trading at $35 in December 2022. These bonds are rated A-, and straight bonds from similar companies with similar maturity yield 9 percent. The current market price of these bonds is $1,066. Calculate the conversion price, conversion value, SBV, floor value, and conversion premium for these bonds. (Round answers to 2 decimal places, e.g. 125.25 or 25.25%.) Conversion price Conversion value $ SBV Floor value Conversion premium $ %
On November 1, 2013, Matthew Corp. sold a $600 million bond issue to finance the purchase of a new distribution facility. These bonds were issued in $1,000 denominations with a maturity date of November 1, 2033. The bonds have a coupon rate of 8.00% with interest paid semiannually. Required: Determine the value today, November 1, 2023 of one of these bonds to an investor who requires a 10 percent return on these bonds. Why is the value today different from the par value? Assume that the bonds are selling for $870.00. Determine the current yield and the yield-to-maturity. Explain what these terms mean. Explain what layers or textures of risk play a role in the determination of the required rate of return on Matthew’s bonds. For each of the following events, explain what the impact would be on the yield-to-maturity: The bond is downgraded by a rating agency. The economy seems to be shifting from a recession to a boom economy. The bond is subordinated to other bonds. Congressional…
On 1 July 2018 MalekaLtd issues $6million in six-year debentures that pay interest each six months at a coupon rate of 8 per cent. At the timeof issuing the securities, the investors requiredrate of return was 6 per cent. Interest expense is determined using the effective-interest method. REQUIRED (i)Determine the issue price of the debenture (ii)Will thedebenture be issued at premium or discount?Why? (iii)Provide the journal entries at:1 July 2018, 30 June 2019, & 30 June 2020.
On January 1, 2016, LoL Corp. issued a 10% convertible bonds with a face value of P4M maturing on December 31, 2025. Each P1,000 bond is convertible into ordinary shares of LoL at a conversion price of P25 per share. Interest is payable half-yearly in cash. At the date of issue, LoL could have issued nonconvertible debt with a ten-year term bearing a coupon interest rate of 11%. On January 1, 2021, the convertible bond has a fair value of P4.4M. LoL makes a tender offer to the holders to repurchase the bonds for P4.4M. The holders of the P2M bonds accepted the offer. At the date of repurchase, LoL could have issued non-convertible debt with a 5-year term bearing a coupon rate of 8%. There purchased of the bonds on January 1, 2021 decreased equity by A.P76,630B.POC.P37,710D.P439,530
On 1 April 2020, an 8% convertible loan with a nominal value of P600,000 was issued at par. It is redeemable on 31 March 2024 also at par. Alternatively it may be converted into equity shares on the basis of 100 new shares for each P200 worth of loan note. An equivalent loan note without the conversion option would have carried interest at 10%. Interest of P48,000 has already been paid and included as a finance cost. Prepare all the necessary entries related to the loan.
On 1st July 2002, Midget Ltd. acquired some corporate bonds issued by Farrelly Ltd. These bonds cast $ 2,277,220 and had a life of four years. They had a 'face value' of $ 2 million and offered a coupon rate of 10 per cent paid annually ($ 200,000 per year, paid on 30th June) The bonds would repay the principal of $ 2 million on 30th June 2026. At the time, the market required a rate of return on 6 per cent on such bonds. Midget Ltd. operates within a business model where government bonds are held in order to collect contractual cash flows and there is no intention to trade them. Assume there were no direct costs associated with acquiring the bonds. Needs answers to the following; a) Explain why the company was prepared to pay $ 2,277,220 for the bonds given that, apart from the interest, they expect to receive only $ 2 million back in four years c) Calculate the amortised cost of the bonds as at 30th June 2023, 2024, 2025 and 2026. d) Provide the accounting journal entries for the…
PBJ Corporation issued bonds on January 1, 2006. The bonds had a coupon rate of 5.5%, with interest paid semiannually. The face value of the bonds is $1,000 and the bonds mature on January 1, 2021. What is the yield to maturity for a PBJ Corporation bond on January 1, 2012 if the market price of the bond on that date is $950?I understand how to find the YtM if I were calculating for 2021, but I don't understand how to set up the equation for 2012 market price.
XYZ is Public Limited Company. The company board of director was decided to offer 1,000 no. of bonds of par value of $10 each in 2018; carrying 15 percent coupon rate and 3 year maturity period, bond would mature in 2021. The discount rate in first year (2019) was 8 percent. The rate was the same in 2020. After that market rate of return had increased to 10 % in 2021. The market (par) value of bonds will be 9 per bond (1,000 bonds). What will be present value of bond?
On January 1, 2024, Morton Sales Company issued zero-coupon bonds with a face value of $6.9 million for cash. The bonds mature in 8 years and were issued at a price of $4,015,869. Required: What total Interest expense will Morton Sales Company report over the 8-year life of these bonds? Note: Use tables, Excel, or a financial calculator. Enter your answer in whole dollars. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Interest expense
3) Company currently has 1.2 million common shares of stock outstanding and the stock has a beta of 1.5. It also has $10 million face value of bonds that matures 26 July 2042 and 7 % coupon with annual payments and are priced to yield 14%. Use actual/actual convention method. Settlement date is 8 April 2021. If the company issues up to $ 2,500,000 of new bonds, the bonds will be priced at par and have a yield of 14 %; if it issues bonds beyond $2,500,000, the expected yield on the entire issuance will be 15 %. Company has known that market value of its shares is traded at the value of $10 a share and the new shares can be sold at the same price. The current risk-free rate is 3 % and the expected market return is 10 %. Company’s tax rate is 30 %. What is the WACC if Company raises $7.5 million of new capital (both equity and debt) while maintaining the same debt-to-equity ratio?
Swift Bicycles plans to issue convertible bonds to finance its future growth. Each convertible bond has a face value equal to $1,000 and can be converted into 25 shares of common stock. What is the minimum stock price that would make it beneficial for bondholders to convert their bonds?
David Palmer identified the following bonds for investment: BondA: A$1millionpar,10%annualcouponbond,whichwillmature on July 1, 2025. Bond B: A $1 million par, 14% semi-annual coupon bond (interest will be paid on January 1 and July 1 each year), which will mature on July 1, 2031. Bond C: A $1 million par, 10% quarterly coupon bond (interest will be paid on January 1, April 1, July 1, and October 1 each year), which will mature on July 1, 2026. The three bonds were issued on July 1, 2011. (a) If Bond B is issued at face value and both Bond B and Bond A are having the same yield to maturity (EAR), calculate the market price of Bond A on July 1, 2011. [N ote: Full mark would only be given to correct answer of which the values of those variables not provided in the question directly are derived.] (b） David purchased the Bond C on January 1, 2014 when Bond C was priced to have a yield to maturity (EAR) of 10.3812891%. David subsequently sold Bond C on January 1, 2016…

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