Question
In: Accounting
Consider a convertible bond with the information given below; assuming the bond is non-callable and non-puttable....
Consider a convertible bond with the information given below; assuming the bond is non-callable and non-puttable.
Maturity = 10 years
Coupon rate = 8%
Conversion ration = 40
Par value = $1,000
Convertible bond’s current market price = 920
Current market price per share of the underlying stock = $20
Annual dividend per share = $0.50
Comparable bonds without the conversion option are trading to yield 12%
- Suppose, in one month from now, the price of the underlying stock declines from $20 to $10 per share.
- What will be the approximate realized rate of return from investing in the underlying stock? (1 point)
- What will be the approximate realized rate of return from investing in the convertible bond? (3 points)
- Why did the difference in the realized rates of return calculated in parts a. and b. above occur? (1 point)
Solutions
ekkarill92 answered 2 years agoRelated Solutions
Consider a convertible bond with the information given below; assuming the bond is non-callable and non-puttable....
Consider a convertible bond with the information given below;
assuming the bond is non-callable and non-puttable.
Maturity = 10 years
Coupon rate = 8%
Conversion ration = 40
Par value = $1,000
Convertible bond’s current market price = 920
Current market price per share of the underlying stock = $20
Annual dividend per share = $0.50
Comparable bonds without the conversion option are trading to
yield 12%
Required 1. a. Market conversion premium per share (1point)
b. Market conversion premium...
Define a callable bond. How is a callable bond different from a non-callable bond? - Consider...
Define a callable bond. How is a callable bond different from a
non-callable bond?
- Consider a non-callable bond with an 8% coupon and with yield
to maturity = 10%. If the bond’s yield to maturity
remains constant, then in one year will the bond price be higher,
lower, or unchanged? Why?
- A 30-year maturity, 8% coupon bond paying coupons semiannually
is callable in 5 years at a call price of $1100. The
bond currently sells at a yield to maturity (YTM)...
A.Define a callable bond. How is a callable bond different from a non-callable bond? Consider a...
A.Define a callable bond. How is a callable bond different from
a non-callable bond?
Consider a non-callable bond with an 8% coupon and with yield to
maturity = 10%. If the bond’s yield to maturity remains constant,
then in one year will the bond price be higher, lower, or
unchanged? Why?
Problem 3 (continued)
B. A 30-year maturity, 8% coupon bond paying coupons
semiannually is callable in 5 years at a call price of $1100. The
bond currently sells at...
Suppose Disney issued a convertible (non-callable) bond with an annual coupon of 10% that matures in...
Suppose Disney issued a convertible (non-callable) bond with an
annual coupon of 10% that matures in 5 years. The conversion ratio
is 26.32 shares of stock per bond and Disney’s stock is currently
trading at $30 per share. The convertible bond is priced at $900 in
the market and the appropriate discount rate is 13%.
What is the Straight Bond Value of this convertible?
What is the Option Value of the Bond?
What is the Conversion Value of the Bond?...
How would we know the bond is Convertible, Vanilla Bond and Callable bond? If we have...
How would we know the bond is Convertible, Vanilla Bond and
Callable bond? If we have to choose one bond which would be the
most suitable for you?
1) Value a 20-yr, non-callable bond that pays coupons of 8% assuming market interest rates are...
1) Value a 20-yr, non-callable bond that pays coupons of 8%
assuming market interest rates are 3%.
Group of answer choices
$989
$1,748
$1,000
$1,455
$802
2)
Given the following information, calculate the present value of
the following bond that pays semi-annual coupons. Par value:
$1,000. Coupon Rate: 9%. Interest Rate: 2%. Maturity: 5 years.
Group of answer choices
$678
$1,000
$1,113
$1,331
$806
3)
An upward sloping yield curve means that:
Group of answer choices
Investors require lower returns...
A 3% callable and convertible corporate bond with a face value of $1,000 and 20 years...
A 3% callable and convertible corporate bond with a face value
of $1,000 and 20 years remaining to maturity trades to yield 0.5%.
Its conversion ratio is 40. The market value of bond is equal to
104% of the conversion value. The issuer just announced the bond
would be called at 110 and simultaneously the market value of the
underlying stock increased by 3%. Find the new market value of the
bond following the announcement and express it in dollars...
You have been hired to value a new 20-year callable, convertible bond. The bond has a...
You have been hired to value a new 20-year callable, convertible
bond. The bond has a coupon rate of 5.5 percent, payable annually.
The conversion price is $101, and the stock currently sells for
$51.10. The stock price is expected to grow at 11 percent per year.
The bond is callable at $1,200, but based on prior experience, it
won't be called unless the conversion value is $1,300. The required
return on this bond is 9 percent.
What value...
You have been hired to value a new 20-year callable, convertible bond. The bond has a...
You have been hired to value a new 20-year callable, convertible
bond. The bond has a coupon rate of 5.5 percent, payable annually.
The conversion price is $97 and the stock currently sells for
$39.10. The stock price is expected to grow at 11 percent per year.
The bond is callable at $1,300; but based on prior experience, it
won't be called unless the conversion value is $1,400. The required
return on this bond is 8 percent.
What value...
A ten year $1,000 bond has a 10% coupon rate convertible semiannually. It is callable at...
A ten year $1,000 bond has a 10% coupon rate convertible
semiannually. It is callable at any time after a two-year lockout
period. An investor wishes to buy the bond to yield at least 8%
convertible semiannually. What is the price which will yield at
least 8% convertible semiannually?? Please show work and steps
without excel or financial calculator
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