Log in
Finance
1
answer
0
watching
112
views

Hello,

I'm struggling in this. Don't understand how to solve the problem. I am hoping that you can be able to help & explain. I appreciate your help. :)

Given the following information concerning convertible bond:
• Coupon: 6 percent ($60 per $1,000 bond)
• Exercise price: $25
• Maturity date: 20 years
• Call price: $1,040
• Price of the common stock: $30

a. If this bond were nonconvertible, what would be its approximate value if comparable interest rates were 9 percent?
b. How many shares can the bond be converted into?
c. What is the value of the bond in terms of stock?
d. What is the current minimum price that the bond will command?
e. Is there any reason to anticipate that the firm will call the bond?
f. What do investors receive if they do not convert the bond when it is called?
g. If the bond were called, would it be advantageous to convert?

Watch
1
answer
0
watching
112
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Nelly Stracke
Nelly StrackeLv2
28 Sep 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related questions

Hello,

I don't understand how does this work. Can you help and explain?

Thank you for your help! :)

Given the following information concerning a convertible bond:

• Principal: $1,000

• Coupon: 5 percent

• 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

a. What is the current yield of this bond?

b. What is the value of the bond based on the market price of the common stock?

c. What is the value of the common stock based on the market price of the bond?

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 purchase the convertible bond instead of a non-convertible bond?

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?

Please Help me..

1. You own a bond with a 7.8 percent coupon rate and a yield to call of 8.7 percent. The bond currently sells for $1,102. If the bond is callable in five years, what is the call premium of the bond? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Call Premium = $_________

2. A convertible bond has a 6 percent coupon, paid semiannually, and will mature in 15 years. If the bond were not convertible, it would be priced to yield 5 percent. The conversion ratio on the bond is 25 and the stock is currently selling for $61 per share. What is the minimum value of this bond? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Minimum Value $________

Newlink Genetics (NLNK) has just issued 25-year callable convertible bonds with a coupon rate of 6% annually and a par value of $1,000. Coupon payments are made on a semi-annual basis and the bond has a conversion price of $95. The companies stock is selling for $31 per share. The owner of the bond will be forced to convert if the bonds conversion value is ever greater than or equal to $1,250. The required rate of return on an otherwise identical nonconvertible bond is 8%. a. What is the minimum value of the bond? b. if the stock were to grow by 15% forever, how long would it take the bonds conversion value to exceed $1,250?

Weekly leaderboard

Home
Homework Help 3,900,000
Finance 370,000
Start filling in the gaps now
Log in