Personal Finance (8th Edition) (What's New in Finance)
8th Edition
ISBN: 9780134730363
Author: Arthur J. Keown
Publisher: PEARSON
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Chapter 15, Problem 2DC1
Summary Introduction
To determine:
The amount of investment in Roth individual retirement account and in individual retirement 403 (b) plan.
Introduction:
Individual retirement account (IRA) is an investment made today to receive the benefit in future. The employee contributes a certain amount of percentage to this account until he is getting the retirement from the company.
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Given the following information concerning a convertible bond:
a. What is the current yield of this bond?
ANSWER: 4.8%
b. What is the value of the bond based on the market price of the common stock?
ANSWER: $864
c. What is the value of the common stock based on the market price of the bond?
ANSWER: $38.52
d. What is the premium in terms of stock that the investor pays when he or she purchases the convertible bond instead of the stock?
ANSWER: $176
e. Nonconvertible bonds are selling with a yield to maturity of 7 percent. If this bond lacked the conversion feature, what would the approximate price of the bond be?
ANSWER: $817
f. What is the premium in terms of debt that the investor pays when he or she purchases the convertible bond instead of a nonconvertible bond?
ANSWER: $223
g. If the price of the common stock should double, would the price of the convertible bond double? Briefly explain your answer.
ANSWER: At least $1,728
h. If the price of the common stock should decline by 50…
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Personal Finance (8th Edition) (What's New in Finance)
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