Suppose you own a convertible bond that has a conversion ratio equal to 62. Each convertible bond has a face value equal to $1,000. The current market value of the company's common stock is $16, and the bond is selling for $1,042. If you want to liquidate your position today because you need money to pay your rent, should you sell the bond or should you convert the bond into common stock and then sell the stock? Explain your answer. Round your answers to the nearest dollar.Selling the bond would generate $_______ . Converting the bond and selling the common stock would generate $_______ . Thus, it would be better to SELL THE BOND / CONVERT THE BOND INTO COMMON STOCK AND THEN SELL THE STOCK Suppose you own a convertible bond that has a conversion ratio equal to 62. Each convertible bond has a face value equal to $1,000. The current marketvalue of the company's common stock is $16, and the bond is selling for $1,042. If you want to liquidate your position today because you need money topay your rent, should you sell the bond or should you convert the bond into common stock and then sell the stock? Explain your answer. Round youranswers to the nearest dollar.Selling the bond would generate $1. Converting the bond and selling the common stock would generate $Thus, it would be bettertv -Select-sell the bondconvert the bond into common stock and then sell the stock

Income generate from selling the bonds would be $1042. If convertible bonds are converted into…

Selling the bond would generate $_______ . Converting the bond and selling the common stock would generate $_______ . Thus, it would be better to SELL THE BOND / CONVERT THE BOND INTO COMMON STOCK AND THEN SELL THE STOCK

Selling the bond would generate $_ . Converting the bond and selling the common stock would generate $_ . Thus, it would be better to SELL THE BOND / CONVERT THE BOND INTO COMMON STOCK AND THEN SELL THE STOCK

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter6: Bonds (debt) - Characteristics And Valuation

Section: Chapter Questions

Problem 3PROB

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Suppose that Xtel currently is selling at $46 per share. You buy 250 shares using $8,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 6%. Required: a. What is the percentage increase in the net worth of your brokerage account if the price of Xtel immediately changes to: (i) $48.76; (ii) $46; (iii) $43.24? What is the relationship between your percentage return and the percentage change in the price of Xtel? b. If the maintenance margin is 25%, how low can Xtel's price fall before you get a margin call? c. How would your answer to (b) change if you had financed the initial purchase with only $5,750 of your own money? d. What is the rate of return on your margined position (assuming again that you invest $8,000 of your own money) if Xtel is selling after 1 year at: (i) $48.76; (ii) $46; (iii) $43.24? What is the relationship between your percentage return and the percentage change in the price of Xtel? Assume that Xtel…
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