The straight bond value of the bond. Introduction: The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

Question

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Answer 1

Question

Chapter 17, Problem 17.2STP

a)

Summary Introduction

To determine: The straight bond value of the bond.

Introduction:

The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

a)

Expert Solution

Explanation of Solution

Given information:

Par value of the bond is given as $1,000 and it is given that the bonds can be converted into 40 shares of common stock. The annual coupon rate is 11% and the interest rate is 13%. Maturity year is 25 years.

Formula to determine the straight bond value of the bond:

B0=Ird×(1−1(1+rd)n)+M×1(1+rd)n

Here,

B₀ refers to the straight bond value

I refers to the discount value

r_d refers to the interest rate

M refers to par value

n refers to maturity year

Determine the straight bond value of the bond:

B0=Ird×(1−1(1+rd)n)+M×1(1+rd)n=(0.11×1000)0.13×(1−1(1+0.13)25)+1,000×1(1+0.13)25=1100.13×(1−121.2305)+1,000×121.2305

=(846.1538×0.952898)+(1,000×0.047102)=806.298+47.102=853.4

Hence, the straight bond value is $853.4.

b)

Summary Introduction

To determine: The conversion value of the bond.

Introduction:

The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

b)

Expert Solution

Explanation of Solution

Given information:

Par value of the bond is given as $1,000 and it is given that the bonds can be converted into 40 shares of common stock. The annual coupon rate is 11% and the interest rate is 13%. Maturity year is 25 years. The market price of the stocks are given as $20, $25, $28, $35, and $50.

Determine the conversion value of the bond:

Market price	Conversion ratio	Conversion value
$20	40	$800
$25	40	$1,000
$28	40	$1,120
$35	40	$1,400
$50	40	$2,000

Computation of conversion value:

Principles of Managerial Finance (14th Edition) (Pearson Series in Finance), Chapter 17, Problem 17.2STP

c)

Summary Introduction

To determine: The selling price of the bond for each stock price given in part (c).

Introduction:

The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

c)

Expert Solution

Explanation of Solution

Given information:

Par value of the bond is given as $1,000 and it is given that the bonds can be converted into 40 shares of common stock. The annual coupon rate is 11% and the interest rate is 13%. Maturity year is 25 years. The market price of the stocks are given as $20, $25, $28, $35, and $50.

Determine the selling price of the bond for each stock price given in part (c):

Market price	Conversion ratio	Conversion value
$20	40	$800
$25	40	$1,000
$28	40	$1,120
$35	40	$1,400
$50	40	$2,000

For each stock price, the bond should be sold at the conversion value. However, it should not be sold less than the straight value of the bond $853.4 (Calculation in Part (a)). Hence, for stock price $20, the bond should be sold at the price of $853.4. For stock price $25, $28, $35, and $50, the bond should be sold at the prices of $1,000, $1,120, $1,400, and $2,000 respectively.

d)

Summary Introduction

To determine: The least selling price for the bond.

Introduction:

The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

d)

Expert Solution

Explanation of Solution

Given information:

Par value of the bond is given as $1,000 and it is given that the bonds can be converted into 40 shares of common stock. The annual coupon rate is 11% and the interest rate is 13%. Maturity year is 25 years.

Determine the least selling price for the bond:

The selling price of the bond should not be less than the straight value of the bond $853.4. Hence, the least selling price is the straight bond value.

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Answer 2

Question

Chapter 17, Problem 17.2STP

a)

Summary Introduction

To determine: The straight bond value of the bond.

Introduction:

The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

a)

Expert Solution

Explanation of Solution

Given information:

Par value of the bond is given as $1,000 and it is given that the bonds can be converted into 40 shares of common stock. The annual coupon rate is 11% and the interest rate is 13%. Maturity year is 25 years.

Formula to determine the straight bond value of the bond:

B0=Ird×(1−1(1+rd)n)+M×1(1+rd)n

Here,

B₀ refers to the straight bond value

I refers to the discount value

r_d refers to the interest rate

M refers to par value

n refers to maturity year

Determine the straight bond value of the bond:

B0=Ird×(1−1(1+rd)n)+M×1(1+rd)n=(0.11×1000)0.13×(1−1(1+0.13)25)+1,000×1(1+0.13)25=1100.13×(1−121.2305)+1,000×121.2305

=(846.1538×0.952898)+(1,000×0.047102)=806.298+47.102=853.4

Hence, the straight bond value is $853.4.

b)

Summary Introduction

To determine: The conversion value of the bond.

Introduction:

The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

b)

Expert Solution

Explanation of Solution

Given information:

Par value of the bond is given as $1,000 and it is given that the bonds can be converted into 40 shares of common stock. The annual coupon rate is 11% and the interest rate is 13%. Maturity year is 25 years. The market price of the stocks are given as $20, $25, $28, $35, and $50.

Determine the conversion value of the bond:

Market price	Conversion ratio	Conversion value
$20	40	$800
$25	40	$1,000
$28	40	$1,120
$35	40	$1,400
$50	40	$2,000

Computation of conversion value:

Principles of Managerial Finance (14th Edition) (Pearson Series in Finance), Chapter 17, Problem 17.2STP

c)

Summary Introduction

To determine: The selling price of the bond for each stock price given in part (c).

Introduction:

The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

c)

Expert Solution

Explanation of Solution

Given information:

Par value of the bond is given as $1,000 and it is given that the bonds can be converted into 40 shares of common stock. The annual coupon rate is 11% and the interest rate is 13%. Maturity year is 25 years. The market price of the stocks are given as $20, $25, $28, $35, and $50.

Determine the selling price of the bond for each stock price given in part (c):

Market price	Conversion ratio	Conversion value
$20	40	$800
$25	40	$1,000
$28	40	$1,120
$35	40	$1,400
$50	40	$2,000

For each stock price, the bond should be sold at the conversion value. However, it should not be sold less than the straight value of the bond $853.4 (Calculation in Part (a)). Hence, for stock price $20, the bond should be sold at the price of $853.4. For stock price $25, $28, $35, and $50, the bond should be sold at the prices of $1,000, $1,120, $1,400, and $2,000 respectively.

d)

Summary Introduction

To determine: The least selling price for the bond.

Introduction:

The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

d)

Expert Solution

Explanation of Solution

Given information:

Par value of the bond is given as $1,000 and it is given that the bonds can be converted into 40 shares of common stock. The annual coupon rate is 11% and the interest rate is 13%. Maturity year is 25 years.

Determine the least selling price for the bond:

The selling price of the bond should not be less than the straight value of the bond $853.4. Hence, the least selling price is the straight bond value.

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Answer 3

Question

Chapter 17, Problem 17.2STP

a)

Summary Introduction

To determine: The straight bond value of the bond.

Introduction:

The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

a)

Expert Solution

Explanation of Solution

Given information:

Par value of the bond is given as $1,000 and it is given that the bonds can be converted into 40 shares of common stock. The annual coupon rate is 11% and the interest rate is 13%. Maturity year is 25 years.

Formula to determine the straight bond value of the bond:

B0=Ird×(1−1(1+rd)n)+M×1(1+rd)n

Here,

B₀ refers to the straight bond value

I refers to the discount value

r_d refers to the interest rate

M refers to par value

n refers to maturity year

Determine the straight bond value of the bond:

B0=Ird×(1−1(1+rd)n)+M×1(1+rd)n=(0.11×1000)0.13×(1−1(1+0.13)25)+1,000×1(1+0.13)25=1100.13×(1−121.2305)+1,000×121.2305

=(846.1538×0.952898)+(1,000×0.047102)=806.298+47.102=853.4

Hence, the straight bond value is $853.4.

b)

Summary Introduction

To determine: The conversion value of the bond.

Introduction:

The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

b)

Expert Solution

Explanation of Solution

Given information:

Par value of the bond is given as $1,000 and it is given that the bonds can be converted into 40 shares of common stock. The annual coupon rate is 11% and the interest rate is 13%. Maturity year is 25 years. The market price of the stocks are given as $20, $25, $28, $35, and $50.

Determine the conversion value of the bond:

Market price	Conversion ratio	Conversion value
$20	40	$800
$25	40	$1,000
$28	40	$1,120
$35	40	$1,400
$50	40	$2,000

Computation of conversion value:

Principles of Managerial Finance (14th Edition) (Pearson Series in Finance), Chapter 17, Problem 17.2STP

c)

Summary Introduction

To determine: The selling price of the bond for each stock price given in part (c).

Introduction:

The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

c)

Expert Solution

Explanation of Solution

Given information:

Par value of the bond is given as $1,000 and it is given that the bonds can be converted into 40 shares of common stock. The annual coupon rate is 11% and the interest rate is 13%. Maturity year is 25 years. The market price of the stocks are given as $20, $25, $28, $35, and $50.

Determine the selling price of the bond for each stock price given in part (c):

Market price	Conversion ratio	Conversion value
$20	40	$800
$25	40	$1,000
$28	40	$1,120
$35	40	$1,400
$50	40	$2,000

For each stock price, the bond should be sold at the conversion value. However, it should not be sold less than the straight value of the bond $853.4 (Calculation in Part (a)). Hence, for stock price $20, the bond should be sold at the price of $853.4. For stock price $25, $28, $35, and $50, the bond should be sold at the prices of $1,000, $1,120, $1,400, and $2,000 respectively.

d)

Summary Introduction

To determine: The least selling price for the bond.

Introduction:

The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

d)

Expert Solution

Explanation of Solution

Given information:

Par value of the bond is given as $1,000 and it is given that the bonds can be converted into 40 shares of common stock. The annual coupon rate is 11% and the interest rate is 13%. Maturity year is 25 years.

Determine the least selling price for the bond:

The selling price of the bond should not be less than the straight value of the bond $853.4. Hence, the least selling price is the straight bond value.

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Answer 4

Question

Chapter 17, Problem 17.2STP

a)

Summary Introduction

To determine: The straight bond value of the bond.

Introduction:

The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

a)

Expert Solution

Explanation of Solution

Given information:

Par value of the bond is given as $1,000 and it is given that the bonds can be converted into 40 shares of common stock. The annual coupon rate is 11% and the interest rate is 13%. Maturity year is 25 years.

Formula to determine the straight bond value of the bond:

B0=Ird×(1−1(1+rd)n)+M×1(1+rd)n

Here,

B₀ refers to the straight bond value

I refers to the discount value

r_d refers to the interest rate

M refers to par value

n refers to maturity year

Determine the straight bond value of the bond:

B0=Ird×(1−1(1+rd)n)+M×1(1+rd)n=(0.11×1000)0.13×(1−1(1+0.13)25)+1,000×1(1+0.13)25=1100.13×(1−121.2305)+1,000×121.2305

=(846.1538×0.952898)+(1,000×0.047102)=806.298+47.102=853.4

Hence, the straight bond value is $853.4.

b)

Summary Introduction

To determine: The conversion value of the bond.

Introduction:

The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

b)

Expert Solution

Explanation of Solution

Given information:

Par value of the bond is given as $1,000 and it is given that the bonds can be converted into 40 shares of common stock. The annual coupon rate is 11% and the interest rate is 13%. Maturity year is 25 years. The market price of the stocks are given as $20, $25, $28, $35, and $50.

Determine the conversion value of the bond:

Market price	Conversion ratio	Conversion value
$20	40	$800
$25	40	$1,000
$28	40	$1,120
$35	40	$1,400
$50	40	$2,000

Computation of conversion value:

Principles of Managerial Finance (14th Edition) (Pearson Series in Finance), Chapter 17, Problem 17.2STP

c)

Summary Introduction

To determine: The selling price of the bond for each stock price given in part (c).

Introduction:

The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

c)

Expert Solution

Explanation of Solution

Given information:

Par value of the bond is given as $1,000 and it is given that the bonds can be converted into 40 shares of common stock. The annual coupon rate is 11% and the interest rate is 13%. Maturity year is 25 years. The market price of the stocks are given as $20, $25, $28, $35, and $50.

Determine the selling price of the bond for each stock price given in part (c):

Market price	Conversion ratio	Conversion value
$20	40	$800
$25	40	$1,000
$28	40	$1,120
$35	40	$1,400
$50	40	$2,000

For each stock price, the bond should be sold at the conversion value. However, it should not be sold less than the straight value of the bond $853.4 (Calculation in Part (a)). Hence, for stock price $20, the bond should be sold at the price of $853.4. For stock price $25, $28, $35, and $50, the bond should be sold at the prices of $1,000, $1,120, $1,400, and $2,000 respectively.

d)

Summary Introduction

To determine: The least selling price for the bond.

Introduction:

The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

d)

Expert Solution

Explanation of Solution

Given information:

Par value of the bond is given as $1,000 and it is given that the bonds can be converted into 40 shares of common stock. The annual coupon rate is 11% and the interest rate is 13%. Maturity year is 25 years.

Determine the least selling price for the bond:

The selling price of the bond should not be less than the straight value of the bond $853.4. Hence, the least selling price is the straight bond value.

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Answer 5

Chapter 17, Problem 17.2STP

a)

Summary Introduction

To determine: The straight bond value of the bond.

Introduction:

The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

a)

Expert Solution

Explanation of Solution

Given information:

Par value of the bond is given as $1,000 and it is given that the bonds can be converted into 40 shares of common stock. The annual coupon rate is 11% and the interest rate is 13%. Maturity year is 25 years.

Formula to determine the straight bond value of the bond:

B0=Ird×(1−1(1+rd)n)+M×1(1+rd)n

Here,

B₀ refers to the straight bond value

I refers to the discount value

r_d refers to the interest rate

M refers to par value

n refers to maturity year

Determine the straight bond value of the bond:

B0=Ird×(1−1(1+rd)n)+M×1(1+rd)n=(0.11×1000)0.13×(1−1(1+0.13)25)+1,000×1(1+0.13)25=1100.13×(1−121.2305)+1,000×121.2305

=(846.1538×0.952898)+(1,000×0.047102)=806.298+47.102=853.4

Hence, the straight bond value is $853.4.

b)

Summary Introduction

To determine: The conversion value of the bond.

Introduction:

The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

b)

Expert Solution

Explanation of Solution

Given information:

Par value of the bond is given as $1,000 and it is given that the bonds can be converted into 40 shares of common stock. The annual coupon rate is 11% and the interest rate is 13%. Maturity year is 25 years. The market price of the stocks are given as $20, $25, $28, $35, and $50.

Determine the conversion value of the bond:

Market price	Conversion ratio	Conversion value
$20	40	$800
$25	40	$1,000
$28	40	$1,120
$35	40	$1,400
$50	40	$2,000

Computation of conversion value:

Principles of Managerial Finance (14th Edition) (Pearson Series in Finance), Chapter 17, Problem 17.2STP

c)

Summary Introduction

To determine: The selling price of the bond for each stock price given in part (c).

Introduction:

The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

c)

Expert Solution

Explanation of Solution

Given information:

Par value of the bond is given as $1,000 and it is given that the bonds can be converted into 40 shares of common stock. The annual coupon rate is 11% and the interest rate is 13%. Maturity year is 25 years. The market price of the stocks are given as $20, $25, $28, $35, and $50.

Determine the selling price of the bond for each stock price given in part (c):

Market price	Conversion ratio	Conversion value
$20	40	$800
$25	40	$1,000
$28	40	$1,120
$35	40	$1,400
$50	40	$2,000

For each stock price, the bond should be sold at the conversion value. However, it should not be sold less than the straight value of the bond $853.4 (Calculation in Part (a)). Hence, for stock price $20, the bond should be sold at the price of $853.4. For stock price $25, $28, $35, and $50, the bond should be sold at the prices of $1,000, $1,120, $1,400, and $2,000 respectively.

d)

Summary Introduction

To determine: The least selling price for the bond.

Introduction:

The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

d)

Expert Solution

Explanation of Solution

Given information:

Par value of the bond is given as $1,000 and it is given that the bonds can be converted into 40 shares of common stock. The annual coupon rate is 11% and the interest rate is 13%. Maturity year is 25 years.

Determine the least selling price for the bond:

The selling price of the bond should not be less than the straight value of the bond $853.4. Hence, the least selling price is the straight bond value.

Answer 6

Chapter 17, Problem 17.2STP

a)

Summary Introduction

To determine: The straight bond value of the bond.

Introduction:

The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

a)

Expert Solution

Explanation of Solution

Given information:

Par value of the bond is given as $1,000 and it is given that the bonds can be converted into 40 shares of common stock. The annual coupon rate is 11% and the interest rate is 13%. Maturity year is 25 years.

Formula to determine the straight bond value of the bond:

B0=Ird×(1−1(1+rd)n)+M×1(1+rd)n

Here,

B₀ refers to the straight bond value

I refers to the discount value

r_d refers to the interest rate

M refers to par value

n refers to maturity year

Determine the straight bond value of the bond:

B0=Ird×(1−1(1+rd)n)+M×1(1+rd)n=(0.11×1000)0.13×(1−1(1+0.13)25)+1,000×1(1+0.13)25=1100.13×(1−121.2305)+1,000×121.2305

=(846.1538×0.952898)+(1,000×0.047102)=806.298+47.102=853.4

Hence, the straight bond value is $853.4.

Answer 7

Chapter 17, Problem 17.2STP

a)

Summary Introduction

To determine: The straight bond value of the bond.

Introduction:

The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

Answer 8

a)

Expert Solution

Explanation of Solution

Given information:

Par value of the bond is given as $1,000 and it is given that the bonds can be converted into 40 shares of common stock. The annual coupon rate is 11% and the interest rate is 13%. Maturity year is 25 years.

Formula to determine the straight bond value of the bond:

B0=Ird×(1−1(1+rd)n)+M×1(1+rd)n

Here,

B₀ refers to the straight bond value

I refers to the discount value

r_d refers to the interest rate

M refers to par value

n refers to maturity year

Determine the straight bond value of the bond:

B0=Ird×(1−1(1+rd)n)+M×1(1+rd)n=(0.11×1000)0.13×(1−1(1+0.13)25)+1,000×1(1+0.13)25=1100.13×(1−121.2305)+1,000×121.2305

=(846.1538×0.952898)+(1,000×0.047102)=806.298+47.102=853.4

Hence, the straight bond value is $853.4.

Answer 9

a)

Expert Solution

Answer 10

a)

Expert Solution

Answer 11

Expert Solution

Answer 12

b)

Summary Introduction

To determine: The conversion value of the bond.

Introduction:

The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

b)

Expert Solution

Explanation of Solution

Given information:

Par value of the bond is given as $1,000 and it is given that the bonds can be converted into 40 shares of common stock. The annual coupon rate is 11% and the interest rate is 13%. Maturity year is 25 years. The market price of the stocks are given as $20, $25, $28, $35, and $50.

Determine the conversion value of the bond:

Market price	Conversion ratio	Conversion value
$20	40	$800
$25	40	$1,000
$28	40	$1,120
$35	40	$1,400
$50	40	$2,000

Computation of conversion value:

Principles of Managerial Finance (14th Edition) (Pearson Series in Finance), Chapter 17, Problem 17.2STP

Answer 13

b)

Summary Introduction

To determine: The conversion value of the bond.

Introduction:

The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

Answer 14

b)

Expert Solution

Explanation of Solution

Given information:

Par value of the bond is given as $1,000 and it is given that the bonds can be converted into 40 shares of common stock. The annual coupon rate is 11% and the interest rate is 13%. Maturity year is 25 years. The market price of the stocks are given as $20, $25, $28, $35, and $50.

Determine the conversion value of the bond:

Market price	Conversion ratio	Conversion value
$20	40	$800
$25	40	$1,000
$28	40	$1,120
$35	40	$1,400
$50	40	$2,000

Computation of conversion value:

Principles of Managerial Finance (14th Edition) (Pearson Series in Finance), Chapter 17, Problem 17.2STP

Answer 15

b)

Expert Solution

Answer 16

b)

Expert Solution

Answer 17

Expert Solution

Answer 18

c)

Summary Introduction

To determine: The selling price of the bond for each stock price given in part (c).

Introduction:

The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

c)

Expert Solution

Explanation of Solution

Given information:

Par value of the bond is given as $1,000 and it is given that the bonds can be converted into 40 shares of common stock. The annual coupon rate is 11% and the interest rate is 13%. Maturity year is 25 years. The market price of the stocks are given as $20, $25, $28, $35, and $50.

Determine the selling price of the bond for each stock price given in part (c):

Market price	Conversion ratio	Conversion value
$20	40	$800
$25	40	$1,000
$28	40	$1,120
$35	40	$1,400
$50	40	$2,000

For each stock price, the bond should be sold at the conversion value. However, it should not be sold less than the straight value of the bond $853.4 (Calculation in Part (a)). Hence, for stock price $20, the bond should be sold at the price of $853.4. For stock price $25, $28, $35, and $50, the bond should be sold at the prices of $1,000, $1,120, $1,400, and $2,000 respectively.

Answer 19

c)

Summary Introduction

To determine: The selling price of the bond for each stock price given in part (c).

Introduction:

The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

Answer 20

c)

Expert Solution

Explanation of Solution

Given information:

Par value of the bond is given as $1,000 and it is given that the bonds can be converted into 40 shares of common stock. The annual coupon rate is 11% and the interest rate is 13%. Maturity year is 25 years. The market price of the stocks are given as $20, $25, $28, $35, and $50.

Determine the selling price of the bond for each stock price given in part (c):

Market price	Conversion ratio	Conversion value
$20	40	$800
$25	40	$1,000
$28	40	$1,120
$35	40	$1,400
$50	40	$2,000

For each stock price, the bond should be sold at the conversion value. However, it should not be sold less than the straight value of the bond $853.4 (Calculation in Part (a)). Hence, for stock price $20, the bond should be sold at the price of $853.4. For stock price $25, $28, $35, and $50, the bond should be sold at the prices of $1,000, $1,120, $1,400, and $2,000 respectively.

Answer 21

c)

Expert Solution

Answer 22

c)

Expert Solution

Answer 23

Expert Solution

Answer 24

d)

Summary Introduction

To determine: The least selling price for the bond.

Introduction:

The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

d)

Expert Solution

Explanation of Solution

Given information:

Par value of the bond is given as $1,000 and it is given that the bonds can be converted into 40 shares of common stock. The annual coupon rate is 11% and the interest rate is 13%. Maturity year is 25 years.

Determine the least selling price for the bond:

The selling price of the bond should not be less than the straight value of the bond $853.4. Hence, the least selling price is the straight bond value.

Answer 25

d)

Summary Introduction

To determine: The least selling price for the bond.

Introduction:

The word conversion stands for the normal meaning as it is. The conversion feature states that the holder of the securities such as the specific bond, stock options or the warrants is able to convert these bonds or warrants into the normal common stock of the firm.

Answer 26

d)

Expert Solution

Explanation of Solution

Given information:

Par value of the bond is given as $1,000 and it is given that the bonds can be converted into 40 shares of common stock. The annual coupon rate is 11% and the interest rate is 13%. Maturity year is 25 years.

Determine the least selling price for the bond:

The selling price of the bond should not be less than the straight value of the bond $853.4. Hence, the least selling price is the straight bond value.