Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 24, Problem 9QP
Calculating Conversion Value [LO6] A $1,000 par convertible debenture has a conversion price for common stock of $34 per share. With the common stock selling at $39, what is the conversion
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A$1,000 face value convertible bond has a conversion ratio of 31 and is about to mature. Ignoring any transaction costs, what price must the stock surpass in order for you to convert?
The required price per share will be $
(Round to the nearest cent.)
please dont put in excel i dont understand that yet
Given the following information concerning a convertible bond:
Principle: $1,000
Coupons: 5 percent
Maturity: 15 years
Call Price: $1,050
Conversion price: $37 (i.e., 27 shares)
Market Price of the Bond: $1040
Common stock: $30 D.What is the premium in terms of stock that the investor pays when he or she purchases the convertible bond instead of the stock? (I already have an answer for D)
E.Nonconvertible bonds are selling with a yield to maturity of 7 percent If this bond lacked the conversion feature, what would the approximate price of the bond be?
F.What is the premium in terms of debt that the investor pays when he or she purchases the convertible bond instead of a nonconvertible bond?
G.What is the probability that the corporation will call this bond?
H.Why are investors willing to pay the premiums mentioned in questions d and f?
A convertible bond has a par value of $1,000 and a conversion priceof $25. The stock currently trades for $22 a share. What are thebond’s conversion ratio and conversion value at t= 0? (40, $880)
Chapter 24 Solutions
Fundamentals of Corporate Finance
Ch. 24.1 - What is a call option? A put option?Ch. 24.1 - If you thought that a stock was going to drop...Ch. 24.2 - What is the value of a call option at expiration?Ch. 24.2 - What are the upper and lower bounds on the value...Ch. 24.2 - Prob. 24.2CCQCh. 24.3 - Prob. 24.3ACQCh. 24.3 - Prob. 24.3BCQCh. 24.3 - Prob. 24.3CCQCh. 24.4 - Prob. 24.4ACQCh. 24.4 - Prob. 24.4BCQ
Ch. 24.5 - Why do we say that the equity in a leveraged firm...Ch. 24.5 - All other things being the same, would the...Ch. 24.6 - Prob. 24.6ACQCh. 24.6 - Prob. 24.6BCQCh. 24.6 - Prob. 24.6CCQCh. 24.7 - Prob. 24.7ACQCh. 24.7 - Prob. 24.7BCQCh. 24.7 - Prob. 24.7CCQCh. 24.7 - Prob. 24.7DCQCh. 24 - Steve sold a put option when the option premium...Ch. 24 - Prob. 24.2CTFCh. 24 - Prob. 24.4CTFCh. 24 - Prob. 1CRCTCh. 24 - Prob. 2CRCTCh. 24 - Prob. 3CRCTCh. 24 - Prob. 4CRCTCh. 24 - Prob. 5CRCTCh. 24 - Options and Stock Risk [LO2] If the risk of a...Ch. 24 - Prob. 7CRCTCh. 24 - Prob. 8CRCTCh. 24 - Prob. 9CRCTCh. 24 - Prob. 10CRCTCh. 24 - Prob. 11CRCTCh. 24 - Prob. 12CRCTCh. 24 - Prob. 13CRCTCh. 24 - Prob. 14CRCTCh. 24 - Prob. 15CRCTCh. 24 - Calculating Option Values [LO2] T-bills currently...Ch. 24 - Understanding Option Quotes [LO1] Use the option...Ch. 24 - Calculating Payoffs [LO1] Use the option quote...Ch. 24 - Calculating Option Values [LO2] The price of Build...Ch. 24 - Calculating Option Values [LO2] The price of...Ch. 24 - Using the Pricing Equation [LO2] A one-year call...Ch. 24 - Equity as an Option [LO4] Rackin Pinion...Ch. 24 - Equity as an Option [LO4] Buckeye Industries has...Ch. 24 - Calculating Conversion Value [LO6] A 1,000 par...Ch. 24 - Convertible Bonds [LO6] The following facts apply...Ch. 24 - Calculating Values for Convertibles [LO6] You have...Ch. 24 - Calculating Warrant Values [LO6] A bond with 20...Ch. 24 - Prob. 13QPCh. 24 - Prob. 14QPCh. 24 - Prob. 15QPCh. 24 - Prob. 16QPCh. 24 - Intuition and Option Value [LO2] Suppose a share...Ch. 24 - Intuition and Convertibles [LO6] Which of the...Ch. 24 - Convertible Calculations [LO6] Starset, Inc., has...Ch. 24 - Abandonment Decisions [LO5] Allied Products, Inc.,...Ch. 24 - Pricing Convertibles [LO6] You have been hired to...Ch. 24 - Abandonment Decisions [LO5] Consider the following...Ch. 24 - SS Airs Convertible Bond SS Air is preparing its...Ch. 24 - Prob. 2MCh. 24 - Prob. 3MCh. 24 - Prob. 4MCh. 24 - Prob. 5M
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- 1 ences The bonds of Generic Labs Inc. have a conversion premium of $60. Their conversion price is $25. The common stock price is $21.00. What is the price of the convertible bond? (Do not round intermediate calculations and round your answer to 2 decimal places.) Mc Graw Hill Convertible bond price Prev 2 of 10 MacBook Air Next >arrow_forwardPlease dont answer in excel i dont understand that yet. Given the following information concerning a convertible bond: Principle: $1,000 Coupons: 5 percent Maturity: 15 years Call Price: $1,050 Conversion price: $37 (i.e., 27 shares) Market Price of the Bond: $1040 Common stock $30 D. What is the premium in terms of stock that the investor pays when he or she purchases the convertible bond instead of the stock? E. Nonconvertible bonds are selling with a yield to maturity of 7 percent If this bond lacked the conversion feature, what would the approximate price of the bond be? F. What is the premium in terms of debt that the investor pays when he or she purchases the convertible bond instead of a nonconvertible bond?arrow_forward(Please answer in an equation rather than excel, i dont know excel yet) Given the following information concerning a convertible bond: Principle: $1,000 Coupons: 5 percent Maturity: 15 years Call Price: $1,050 Conversion price: $37 (i.e., 27 shares) Market Price of the Bond: $1040 Common stock $30 D. What is the premium in terms of stock that the investor pays when he or she purchases the convertible bond instead of the stock? E. Nonconvertible bonds are selling with a yield to maturity of 7 percent If this bond lacked the conversion feature, what would the approximate price of the bond be? F. What is the premium in terms of debt that the investor pays when he or she purchases the convertible bond instead of a nonconvertible bond?arrow_forward
- Given the following information concerning a convertible bonds: Principal $1,000 Coupon 5% Maturity 15 years Call price $1,050 Conversion price $37 (i.e., 27 shares) Market price of the common stock $32 Market price of the bond $1,040 F. What is the premium in terms of debt that the investor pays when he or she purchases the convertible bond instead of a nonconvertible bond? G. If the price of the common stock should double, would the price of the convertible bond double? Briefly explain your answer? H. If the price of the common stock should decline by 50 percent, would the price of the convertible bond decline by the same percentage? Briefly explain your answer. I. What is the probability that the corporation will call this bond? J. Why are investors willing to pay the premiums mentioned in parts (d) and (f)arrow_forwardConsider a convertible bond as follows: par value = $1,000, coupon rate = 8.00%, market price of convertible bond = $1,100, conversion ratio = 18, straight value of bond = $600, yield to maturity of straight bond = 10%, current price of common stock = $45, dividend per share = $3.00/year. A. What is the favorable income differential per bond (not per share)? B. At what stock price, the realized return from investing in the convertible bond becomes zero? In other words, what is the break-even stock price?arrow_forwardA convertible bond has a par value of $1,000 and a conversion price of $40. The stock currently trades for $30 a share. What are the bond's conversion ratio and conversion value at t=0? (CR = 25; P (CR) = $30 x 25 = $750)arrow_forward
- A convertible bond has a par value of $1,000 and a conversion price of $40. The stockcurrently trades for $30 a share. What are the bond’s conversion ratio and conversionvalue at t =0?arrow_forwardSuppose you own a convertible bond that has a conversion ratio equal to 58. Each convertible bond has a face value equal to $1,000. The current market value of the company's common stock is $17, and the bond is selling for $1,036. 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 .arrow_forwardH5. Which of the following is the name of the semiannual payment of $20 that you receive on a bond you own? a. Face Value b. Discount c. Yield d. Call Premium e. Coupon Explain with details and also explain wrong optionsarrow_forward
- Please dont answer in excel, im not familiar with that yet, equations are great or if the problem merits a worded answer, thank you) Given the following information concerning a convertible bond: Principle: $1,000 Coupons: 5 percent Maturity: 15 years Call Price: $1,050 Conversion price: $37 (i.e., 27 shares) Market Price of the Bond: $1040 Common stock: $30 D, What is the premium in terms of stock that the investor pays when he or she purchases the convertible bond instead of the stock?D E, Nonconvertible bonds are selling with a yield to maturity of 7 percent If this bond lacked the conversion feature, what would the approximate price of the bond be? F, What is the premium in terms of debt that the investor pays when he or she purchases the convertible bond instead of a nonconvertible bond? G, What is the probability that the corporation will call this bond? H, Why are investors willing to pay the premiums mentioned in questions d and f?arrow_forwardSuppose 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 STOCKarrow_forwardplease dont answer in excel, i dont understand that yet, just equations or worded answers please, thanks) Given the following information concerning a convertible bond: Principle: $1,000 Coupons: 5 percent Maturity: 15 years Call Price: $1,050 Conversion price: $37 (i.e., 27 shares) Market Price of the Bond: $1040 Common stock: $30 A. What is the current yield of this bond? B. What is the value of the bond based on the market price of the common stock? C. What is the value of the bond based on the market priced of the bond?arrow_forward
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