Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 24, Problem 24PS
Convertible bonds Iota Microsystems’ 10% convertible is about to mature. The conversion ratio is 27.
- a. What is the conversion price?
- b. The stock price is $47. What is the conversion value?
- c. Should you convert?
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Students have asked these similar questions
A$1,000 face value convertible bond has a conversion ratio of 31 and is about to mature. Ignoring any transaction costs, what price must the stock surpass in order for you to convert?
The required price per share will be $
(Round to the nearest cent.)
H5.
Which of the following is the name of the semiannual payment of $20 that you receive on a bond you own?
a. Face Value
b. Discount
c. Yield
d. Call Premium
e. Coupon
Explain with details and also explain wrong options
Given the following information concerning a convertible bonds:
Principal
$1,000
Coupon
5%
Maturity
15 years
Call price
$1,050
Conversion price
$37 (i.e., 27 shares)
Market price of the common stock
$32
Market price of the bond
$1,040
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?
G.
If the price of the common stock should double, would the price of the convertible bond double? Briefly explain your answer?
H.
If the price of the common stock should decline by 50 percent, would the price of the convertible bond decline by the same percentage? Briefly explain your answer.
I.
What is the probability that the corporation will call this bond?
J.
Why are investors willing to pay the premiums mentioned in parts (d) and (f)
Chapter 24 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 24 - Bond terms Select the most appropriate term from...Ch. 24 - Sinking funds For each of the following sinking...Ch. 24 - Security and seniority a. As a senior bondholder,...Ch. 24 - Prob. 4PSCh. 24 - Prob. 5PSCh. 24 - Private placements Explain the three principal...Ch. 24 - Prob. 7PSCh. 24 - Prob. 8PSCh. 24 - Convertible bonds True or false? a. Convertible...Ch. 24 - Prob. 10PS
Ch. 24 - Bond terms Bond prices can fall either because of...Ch. 24 - Prob. 13PSCh. 24 - Prob. 14PSCh. 24 - Security and seniority a. Residential mortgages...Ch. 24 - Prob. 16PSCh. 24 - Prob. 17PSCh. 24 - Call provisions a. If interest rates rise, will...Ch. 24 - Prob. 19PSCh. 24 - Covenants Alpha Corp. is prohibited from issuing...Ch. 24 - Prob. 21PSCh. 24 - Convertible bonds The Surplus Value Company had 10...Ch. 24 - Prob. 23PSCh. 24 - Convertible bonds Iota Microsystems 10%...Ch. 24 - Prob. 25PSCh. 24 - Convertible bonds Zenco Inc. is financed by 3...Ch. 24 - Tax benefits Dorlcote Milling has outstanding a 1...Ch. 24 - Convertible bonds This question illustrates that...Ch. 24 - Prob. 29PS
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Q3) Referring to the two corporate bonds' data at below table, answer the following: If the market interest rate was 10%, what would the bonds prices be? Would you consider both bonds to be selling at a discount, premium, or at par value and why? Explain what it means when a bond is selling at a discount, a premium, or at its par value. Bond A Bond B Maturity Years 20 30 Coupon Rate (Paid Semiannual) 12% 8% Par Value (OMR) 1000 1000arrow_forwardQ3arrow_forwardround to nearest centarrow_forward
- Given the following information concerning a convertible bond: Principle: $1,000 Coupons: 5 percent Maturity: 15 years Call Price: $1,050 Conversion price: $37 (i.e., 27 shares) Market Price of the Bond: $1040 Common stock: $30 G. What is the probability that the corporation will call this bond? H. Why are investors willing to pay the premiums mentioned in questions d and f? (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? 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?) (dont need D and F answers only G. and H. need help with please dont put in excel i dontunderstand that stuff yet equations and worded answers please)arrow_forwardH5. Show proper step by step calculationarrow_forwardPlease answer fast I give upvotearrow_forward
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- 1. You own a convertible bond that pays annually, has a 4% yield, 7.5% coupon rate, and matures in 10 years. The conversion ratio is 20. The stock price is $43. What is your gain or loss if you convert? What is the minimum stock price to convert this bond? Answer: loss of 423.88 / convert if stock price is greater than 64.19arrow_forward(Please answer in an equation rather than excel, i dont know excel yet) Given the following information concerning a convertible bond: Principle: $1,000 Coupons: 5 percent Maturity: 15 years Call Price: $1,050 Conversion price: $37 (i.e., 27 shares) Market Price of the Bond: $1040 Common stock $30 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? 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? 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?arrow_forwardConsider a convertible bond as follows: par value = $1,000, coupon rate = 8.00%, market price of convertible bond = $1,100, conversion ratio = 18, straight value of bond = $600, yield to maturity of straight bond = 10%, current price of common stock = $45, dividend per share = $3.00/year. A. What is the favorable income differential per bond (not per share)? B. At what stock price, the realized return from investing in the convertible bond becomes zero? In other words, what is the break-even stock price?arrow_forward
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