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 9P
a.
Summary Introduction
To calculate: The conversion premium of Sherwood Forest Products’ bond.
Introduction:
Bond:
These are debt units sold by a corporation or the government to the investors. These are instruments that provide fixed income.
Conversion value:
It is the financial value of securities which is obtained when a security of convertible nature is exchanged by an underlying asset.
b.
Summary Introduction
To Calculate: The price at which sale of conversion value of common stock is equivalent to the latest bond price of Sherwood Forest Products.
Introduction:
Bonds:
These are debt units sold by a corporation or the government to the investors. These are instruments that provide fixed income.
Conversion value:
It is the financial value of securities which is obtained when a security of convertible nature is exchanged by an underlying asset.
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Standard Olive Company of California has a $1,000 par value convertible bond outstanding with a coupon rate of 8 percent and a
maturity date of 25 years. It is rated Aa, and competitive, nonconvertible bonds of the same risk class carry a 10 percent yield. The
conversion ratio is 25. Currently the common stock is selling for $30 per share on the New York Stock Exchange.
a. What is the conversion price? (Round your answer to 2 decimal places.)
Conversion price
b. What is the conversion value? (Round your answer to 2 decimal places.)
Conversion value
c. Compute the pure bond value. (Use semiannual analysis.) Use Appendix B and Appendix D as an approximate answer, but calculate
your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final
answer to 2 decimal places.)
Bond value
d. Calculate the crossover point at which the pure bond value equals conversion value. (Do not round intermediate calculations.
Round your answer to…
Compute the premium payback period of the following convertible bond: par=$100, coupon rate=6%, conversion ratio=19, current market price=$114.87. The underlying stock is currently trading at $4.14, and it pays an annual dividend of $0.06 per share.
Round your answer to 2 decimal places.
Use the following information for the next three problems.
Floppy Company has an issue of convertible bonds with a $1,000 par value. Floppy’s bonds have a 10 percent coupon rate. They have a 10-year maturity, and are convertible into 100 shares of common stock. The yield to maturity on bonds of similar risk is 11 percent and the market price of the firm's common stock is currently $9.00. Based on this information,
What is the conversion value of Floppy’s bond if it is selling at $970.
What is its pure bond value?
What is its conversion premium?
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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