Question
In: Finance
A bond is convertible into common stock for $25. The bond trades at 120 and the...
A bond is convertible into common stock for $25. The bond
trades at 120 and the stock trades at $32. Which of the following
are true?
I. The stock trades above parity
II. The stock trades below parity
III. Converting the bond would be profitable
IV. Converting the bond would not be profitable
I & III
II & IV
I & IV
II & III
Solutions
Expert Solution
Correct option is Option A - I & III (I. The stock trades above parity & III. Converting the bond would be profitable)
Reasoning-
Common stock parity price = $25.
Current price of stock = $32.
Current price of Convertible Bond = $120
-Diffennce in Current price of stock and Common stock parity price i.e. $32- $25 = $7) Thus, The stock trades above parity.
On Converting the bond, Bondholder would have profit as stock trades above parity as bondholder will get higher value stock at conversion price of $25.
Thus, Converting the bond would be profitable.
Thus I & III are true
jeff jeffy answered 2 years agoRelated Solutions
A bond is convertible into common stock for $20. If the bond trades at 120, what...
A bond is convertible into common stock for $20. If the bond
trades at 120, what is the parity price of the stock?
$60
$50
$25
$24
A bond is convertible into 50 shares of common stock. The bond trades at 110 and...
A bond is convertible into 50 shares of common stock. The bond
trades at 110 and the stock trades at $21. Which of the following
are true?
I. The stock trades above parity
II. The stock trades below parity
III. Converting the bond would be profitable
IV. Converting the bond would not be profitable
II & III
I & III
II & IV
I & IV
A convertible bond can be converted into common stock of the bond issuer at a price...
A convertible bond can be converted into common stock of the
bond issuer at a price of $20 per share. The bond is currently
selling at $800. What is the parity price of the underlying
stock?
A bond is convertible into common stock for $50. If the company announces a 50% stock...
A bond is convertible into common stock for $50. If the
company announces a 50% stock dividend, what is the new conversion
price?
$18.18
$22.22
$33.33
$45.45
A bond is convertible into common stock for $20. If the company announces a 10% stock...
A bond is convertible into common stock for $20. If the
company announces a 10% stock dividend, what is the new conversion
price?
$18.00
$22.22
$33.33
$18.18
A 3% coupon, $1,000 face amount, 5-year bond is convertible into 25 shares of company stock....
A 3% coupon, $1,000 face amount, 5-year bond is convertible
into 25 shares of company stock. The current stock price is $30. At
maturity, the stock price is $50. Assuming the bond is bought at
issuance for $1,000, i.e. par, and interest is paid semi-annually,
the total annual return for the investor will be:
A 3% coupon, $1,000 face amount, 5-year bond is convertible into 25 shares of company stock....
A 3% coupon, $1,000 face amount, 5-year bond is convertible
into 25 shares of company stock. The current stock price is $30. At
maturity, the stock price is $50. Assuming the bond is bought at
issuance for $1,000, i.e. par, and interest is paid semi-annually,
the total annual return for the investor will be:
3.00%
3.62%
7.24%
5.40%
Convertible Preferred Stock, Convertible Bonds, and EPS Francis Company has 16,800 shares of common stock outstanding...
Convertible Preferred Stock, Convertible Bonds, and EPS
Francis Company has 16,800 shares of common stock outstanding at
the beginning of 2019. Francis issued 2,100 additional shares on
May 1 and 1,400 additional shares on September 30. It also has two
convertible securities outstanding at the end of 2019. These
are:
Convertible preferred stock: 1,750 shares of 8.0%, $50 par,
preferred stock were issued on January 2, 2016, for $55 per share.
Each share of preferred stock is convertible into 2...
Convertible Preferred Stock, Convertible Bonds, and EPS Francis Company has 31,200 shares of common stock outstanding...
Convertible Preferred Stock, Convertible Bonds, and EPS
Francis Company has 31,200 shares of common stock outstanding at
the beginning of 2016. Francis issued 3,900 additional shares on
May 1 and 2,600 additional shares on September 30. It also has two
convertible securities outstanding at the end of 2016. These
are:
Convertible preferred stock: 3,250 shares of 9.0%, $50 par,
preferred stock were issued on January 2, 2013, for $60 per share.
Each share of preferred stock is convertible into 3...
Convertible Preferred Stock, Convertible Bonds, and EPS Francis Company has 31,200 shares of common stock outstanding...
Convertible Preferred Stock, Convertible Bonds, and EPS Francis
Company has 31,200 shares of common stock outstanding at the
beginning of 2016. Francis issued 3,900 additional shares on May 1
and 2,600 additional shares on September 30. It also has two
convertible securities outstanding at the end of 2016. These are:
Convertible preferred stock: 3,250 shares of 9.0%, $50 par,
preferred stock were issued on January 2, 2013, for $60 per share.
Each share of preferred stock is convertible into 3...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Build your own computer from the ground up. You must define each part that you want...
- Part A. Outline and explain all the VARIABLES and FACTORS that determine valuation and valuation analysis...
- Study the file polygon.h. It contains the header file for a class of regular polygons. Implement...
- what challenges can myths and stereotypes create for american indians?
- Date accuracy is very important because dates are used for discounts, payment terms and many reports....
- How many milliliters of concentrated hydrochloric acid solution (36.0% HCl by mass, density = 1.18 g/mL)...
- How does the rotating membership of the FOMC work? Why does the president of New York's...
ADVERTISEMENT