Vernon Glass Company has $20 million in 10 percent, $1,000 par value convertible bonds outstanding. The conversion ratio is 40, the stock price is $19, and the bond matures in 25 years. The bonds are currently selling at a conversion premium of $45 over their conversion value. If the price of the common stock rises to $25 on this date next year, what would your rate of return be if you bought a convertible bond today and sold it in one year? Assume on this date next year, the conversion premium has shrunk from $45 to $25. (Hint: Calculate rate of return as (Future bond price - Current bond price + Interest earnings) / Current bond price)) (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Rate of return %

Vernon Glass Company has $20 million in 10 percent, $1,000 par value convertible bonds outstanding. The conversion ratio is 40, the stock price is $19, and the bond matures in 25 years. The bonds are currently selling at a conversion premium of $45 over their conversion value. If the price of the common stock rises to $25 on this date next year, what would your rate of return be if you bought a convertible bond today and sold it in one year? Assume on this date next year, the conversion premium has shrunk from $45 to $25. (Hint: Calculate rate of return as (Future bond price - Current bond price + Interest earnings) / Current bond price)) (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Rate of return %

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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You bought one of Great White Shark Repellant Co.'s 7.4 percent coupon bonds one year ago for $1,041. These bonds make annual payments and mature 20 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 6 percent. The bonds have a par value of $1,000. If the inflation rate was 4 percent over the past year, what was your total real return on investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Suppose you purchased a corporate bond with a10-year maturity, a $1,000 par value, a 10% couponrate, and semiannual interest payments. This meansthat you receive a $50 interest payment at the end ofeach six-month period for 10 years (20 times). Then,when the bond matures, you will receive the principalamount (the face value) in a lump sum. Three yearsafter the bonds were purchased, the going rate ofinterest on new bonds fell to 6% (or 6% compoundedsemiannually). What is the current market value (P)of the bond (three years after its purchase)?
A major manufacturer is reevaluating its bonds since it is planning to issue a new bond in the current market. The firm's outstanding bond issue has 7 years remaining till maturity. The bonds were issued with an 8 percent coupon rate (paid quarterly) and selling at par value. The required rate of return is 10 percent. What is the current value of these securities?
Thatcher Corporation's bonds will mature in 10 years. The bonds have a face value of $1,000 and an 8% coupon rate, paid semiannually. The price of the bonds is $1,100. The bonds are callable in 5 years at a call price of $1,050. What's the yield to maturity?
ABC Inc. is planning to issue new annual coupon bonds with a maturity of ten years. The company outstanding (annual coupon paying) bonds have a 7.5% coupon rate and mature in ten years. They are currently selling for $1,013.03. What would the coupon rate on the new bonds have to be such that they will sell at par upon issuance?
The Moonlight Mile Corporation wants to issue $1,000,000 of new bonds. Their bonds will have a coupon rate of 8% paid semiannually, will have 30 years to maturity, will have a par value of $1,000, and have a yield to maturity of 7%. How many bonds should Moonlight Mile sell in order to raise $1,000,000
Today you buy ten zero-coupon bonds which will mature in exactly 5 years. Each of these ten bonds has a face value of $100. The price you pay today for each of these bonds is $82. Assume a year goes by. Now there are only 4 years left before these bonds mature. You sell these bonds in the market for $75 per bond. What is the return you have realized on your investment in these bonds? -7.00% -9.26% -8.54% We do not have sufficient information about interest rates to calculate this answer. -9.33%
Silver Run Inc. has 6% coupon bonds outstanding that pay interest semiannually and have 15 years remaining until maturity. They carry a face value of $1000. These bonds are currently selling for $1143. What price should these bonds sell for two years from now if their yield drops by 100 basis points over the two years?
A firm has some $1,000 par value bonds outstanding that pay a 12 percent interest rate. The bonds pay interest yearly and have 10 years until they mature. If bonds that bear similar risk currently earn 8 percent, how much will the firm's bond sell for today? A) $1,000 B) $805.20 C) $851.50 D) $1,268.20
Gordon Growth Company is expected to pay a dividend of $4 next period and dividends are expected to grow at 6% per year. The required return is 16%. What is the price expected to be in year 4? O a. $10 O b. $50.50 O c. $41.6 O d. $40 You intend to purchase a 10-year, $1,000 face value bond that pays interest of $60 every 6 months. If your nominal annual required rate of return is 10 percent with semiannual compounding, how much should you be willing to pay for this bond? Select one:
Suppose you sold an issue of bonds with a 5-year maturity, a $1,000 par value, a 10% coupon rate, and annual interest payments according to the following data. 2. a. one year after the bonds were issued, the going rate of interest on bonds such as these fell to 6%. At what price would the bonds sell b. two years after the initial issuance, the going interest rate had risen to 12%. At what price would the bonds sell
You have been hired to value a new 20-year callable, convertible bond. The bond has an 8 percent coupon rate, payable annually. The conversion price is $50, and the stock currently sells for $30. The stock price is expected to grow at 14.8698 percent per year. The bond is callable at $1,100; but based on prior experience, it will not be called unless the conversion value is $1,200. The required return on this bond is 10 percent. What would be the expected rate of return to the investor?

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