Foundations of Financial Management
16th Edition
ISBN: 9781259277160
Author: Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Publisher: McGraw-Hill Education
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Chapter 19, Problem 22P
a.
Summary Introduction
To calculate: The
Introduction:
Rate of Return (ROR):
It is the rate that shows the net profit or loss, an investor earns or loses on an investment over a particular time-period. It helps in measuring growth of an investment that took place in two periods.
b.
Summary Introduction
To calculate: The pure bond value when the nonconvertible bonds’ yield gets decreased to 8% at the time of sale and also explain its significant effect on valuation of Tulsa Drilling Company.
Introduction:
Bond:
It is a long term loan borrowed by the corporations, organizations, and the government for the
purpose of raising capital. It is issued at a fixed interest depending upon the reputation of the
corporations and also termed as fixed-income security.
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Tulsa Drilling Company has $1.7 million in 14 percent convertible bonds outstanding. Each bond has a $1,000 par value. The conversion ratio is 40, the stock price is $32, and the bonds mature in 10 years. The bonds are currently selling at a conversion premium of $80 over the conversion value. Use Appendix B and Appendix D as an approximate answer, but calculate your final answer using the formula and financial calculator methods.
a. Today, one year later, the price of Tulsa Drilling Company common stock has risen to $42. What would your rate of return be if you had purchased the convertible bond one year ago and sold it today? Assume that on the date of sale, the conversion premium has shrunk from $80 to $30. (Don’t forget to include the interest payment for the first year)
B. Assume the yield on similar nonconvertible bonds has fallen to 12 percent at the time of sale. What would the pure bond value be at that point? (Use semiannual analysis.)
Tulsa Drilling Company has $1.6 million in 12 percent convertible bonds outstanding. Each bond has a $1,000 par value. The
conversion ratio is 40, the stock price is $30, and the bonds mature in 10 years. The bonds are currently selling at a conversion
premium of $80 over the conversion value. Use Appendix B and Appendix D as an approximate answer, but calculate your final
answer using the formula and financial calculator methods.
a. Today, one year later, the price of Tulsa Drilling Company common stock has risen to $40. What would your rate of return be if you
had purchased the convertible bond one year ago and sold it today? Assume that on the date of sale, the conversion premium has
shrunk from $80 to $30. (Hint: Don't forget to include the interest payment for the first year) (Do not round intermediate calculations.
Input your answer as a percent rounded to 2 decimal places.)
Rate of return
%
b-1. Assume the yield on similar nonconvertible bonds has fallen to 10 percent at the…
Vernon Glass Company has $20 million in 10 percent, $1,000 par value convertible bonds outstanding. The conversion ratio is 40, the
stock price is $19, 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 $25 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 $25. (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
m
1
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Chapter 19 Solutions
Foundations of Financial Management
Ch. 19 - Prob. 1DQCh. 19 - Prob. 2DQCh. 19 - Why is it said that convertible securities have a...Ch. 19 - Prob. 4DQCh. 19 - Prob. 5DQCh. 19 - Prob. 6DQCh. 19 - Explain the difference between basic earnings per...Ch. 19 - Prob. 8DQCh. 19 - Prob. 9DQCh. 19 - Prob. 10DQ
Ch. 19 - Prob. 11DQCh. 19 - Prob. 12DQCh. 19 - Prob. 13DQCh. 19 - Prob. 1PCh. 19 - Prob. 2PCh. 19 - Prob. 3PCh. 19 - Prob. 4PCh. 19 - Prob. 5PCh. 19 - Prob. 6PCh. 19 - Prob. 7PCh. 19 - Prob. 8PCh. 19 - Prob. 9PCh. 19 - Prob. 10PCh. 19 - Prob. 11PCh. 19 - Prob. 12PCh. 19 - Prob. 13PCh. 19 - Prob. 14PCh. 19 - Prob. 15PCh. 19 - Prob. 16PCh. 19 - Prob. 17PCh. 19 - Prob. 18PCh. 19 - Prob. 19PCh. 19 - Prob. 20PCh. 19 - Prob. 21PCh. 19 - Prob. 22PCh. 19 - Prob. 23PCh. 19 - What area the first five products offered?
Ch. 19 - Prob. 4WE
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