Maple Aircraft has issued a convertible bond at 4.75% interest due 2020. The market price of...

Maple Aircraft has issued a convertible bond at 4.75% interest due 2020. The market price of the convertible is 91% of face value (face value is $1,000). The current price of the common stock is $41.50 and the conversion price is $47. Assume that the value of the bond in the absence of a conversion feature is about 65% of face value. How much is the convertible holder paying for the option to buy one share of common stock?

A. $12.22

B. $10.79

C. $5.5

D. $13.12

Please Show the steps on how to get the answer.

Expert Solution

jeff jeffy answered 10 months ago

Maple Aircraft has issued a 4¾% convertible subordinated debenture due 3 years from now. The conversion...

Maple Aircraft has issued a 4¾% convertible subordinated debenture due 3 years from now. The conversion price is $47.00 and the debenture is callable at 102.75% of face value. The market price of the convertible is 91% of face value, and the price of the common is $41.50. Assume that the value of the bond in the absence of a conversion feature is about 65% of face value. In the absence of the conversion feature, what is the current yield...

Due to convexity, when interest rates change, the bond price will ____________ the bond price predicted...

Due to convexity, when interest rates change, the bond price will ____________ the bond price predicted by duration.

Assume Uber Technologies Inc., just issued a zero-coupon convertible bond due in 10 years. The face...

Assume Uber Technologies Inc., just issued a zero-coupon convertible bond due in 10 years. The face amount of the bond is $1,000. The conversion ratio is 25 shares. The appropriate interest rate (Kd) is 12%. The current stock price is $12 per share. Each convertible is trading at $400 in the market. – 5 marks What is the Macaulay duration of the Uber Technologies Inc. bond? What is the conversion value? What is the straight bond value? What is the...

Sean Thornton has invested in a convertible bond issued by Cohn Enterprises The conversion ratio is...

Sean Thornton has invested in a convertible bond issued by Cohn Enterprises The conversion ratio is 20. The market price of Cohan common stock I $60 per share. The face value is $1000. The coupon rate is 8 percent and the annual interest is paid until the maturity date 10 years from now. similar nonconvertible bonds are yielding 12 percent (YTM) in the marketplace. a.)Calculate the straight bond value of this bond. b.) Calculate the conversion value of the Cohan...

Your firm has issued 35,000 bonds with a market price of $100 per bond. The firm...

Your firm has issued 35,000 bonds with a market price of $100 per bond. The firm also has 50,000 common shares outstanding at a price of $65 per share. If the common shares will pay a dividend of $2.50 at the end of the year and thereafter dividends will grow at a rate of 3%. If the after-tax yield on the firm's bonds is 6%, what is the firm's weighted average cost of capital?

Sally Inc has a bond outstanding with a $70 interest payment, a market price of $860,...

Sally Inc has a bond outstanding with a $70 interest payment, a market price of $860, and a maturity date in five years. Par value is $1,000. what is the approvimate yield to maturity?

Preston Corporation has a bond outstanding with an annual interest payment of $90, a market price...

Preston Corporation has a bond outstanding with an annual interest payment of $90, a market price of $1,280, and a maturity date in 7 years. Assume the par value of the bond is $1,000. Find the following: (Use the approximation formula to compute the approximate yield to maturity and use the calculator method to compute the exact yield to maturity. Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) A. Coupon rate B....

Preston Corporation has a bond outstanding with an annual interest payment of $100, a market price...

Preston Corporation has a bond outstanding with an annual interest payment of $100, a market price of $1,300, and a maturity date in 6 years. Assume the par value of the bond is $1,000. Find the following: (Use the approximation formula to compute the approximate yield to maturity and use the calculator method to compute the exact yield to maturity. Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Coupon Rate...

Preston Corporation has a bond outstanding with an annual interest payment of $110, a market price...

Preston Corporation has a bond outstanding with an annual interest payment of $110, a market price of $1,320, and a maturity date in 8 years. Assume the par value of the bond is $1,000. Find the following: (Use the approximation formula to compute the approximate yield to maturity and use the calculator method to compute the exact yield to maturity. Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) a. Coupon rate b....

Consider a convertible bond as follows: par value = $1,000; coupon rate = 9.0% market price...

Consider a convertible bond as follows: par value = $1,000; coupon rate = 9.0% market price of convertible bond = $1,000 conversion ratio = 37 estimated straight value of bond = $500 yield to maturity of straight bond = 18.1% Assume that the price of the common stock is $20 and that the dividend per share is $0.75 per year. Answer the below questions. (a) Calculate each of the following (1) conversion value, (2) market conversion price, (3) conversion premium...

Question