Reference no: EM132999194
Falcon Company is planning to issue convertible bonds to finance planned expansion operations that will cost $1 billion. Company plans to issue bonds at par value of $1000 each with an option to convert bonds into stocks at maturity to make issuance attractive for investors. Current share price of Falcon is $60 and bond A will be issued with a 25% conversion premium, 4 years term and $400 million total value ; and Bond B will be issued with a 35% conversion premium, 5 years term and $600 million total value. Both bonds will pay semi-annual coupon. Falcon has stock options available in the market and on the closing of 08/16/2021, option prices are listed below;
08/13/2021 Market Data (Share Price: $55)
Option Type Exercise Price Last Trade Maturity
Call $55 $2.00 09/30/2021
Call $58 $1.55 11/15/2021
Call $60 $1.97 02/15/2022
Management asked your help to determine coupon rate for the convertible bond issuance.
a. Calculate implied volatilities of the options listed above and use the average volatility in your option valuation.
b. Get the yield of 5 years US Treasure Note and use it as your risk-free rate. (You may use finance.yahoo.com or other online sources)
c. Calculate the option price with the 25% and 35% conversion premium and the value of the conversion options seperately.
d. Find the appropriate coupon rate that reflects the value of the conversion option and bond issued at par value. Yield estimate for the bond is 6%.
|
Optimise a credit portfolio
: The typical risk-return optimisation process does not yield very accurate results when applied to a credit portfolio. Explain what sort of approach works best t
|
|
Which would be included on an income statement
: Which would be included on an income statement? Which would be classified as a current liability? Which of the following is considered a liability?
|
|
Calculate the afc
: The Only National Bank of Summit County has given you a line of credit of $5,000. Interest on the borrowed amount is 8% per year. You must maintain a 10% compen
|
|
Calculate the value of the stock today
: Turbo Technology Computers is experiencing a period of rapid growth. Earnings and dividends are expected to grow at a rate of 15% during the next two years, at
|
|
Calculate implied volatilities of the options
: Falcon Company is planning to issue convertible bonds to finance planned expansion operations that will cost $1 billion. Company plans to issue bonds at par val
|
|
What is the importance of having a sustainability strategy
: What is the importance of having a sustainability strategy? Give at least three takeaways you've learned in "Introduction to Strategy and Sustainability".
|
|
Calculate the npv of the project
: Ventspils plc are considering buying a new machine in order to produce a new product. The machine will cost $2,800,000 and is expected to last for 3 years at wh
|
|
Calculate the going-in cap rate
: Suppose that you are considering the purchase of a shopping center as a real estate investment. The estimated purchase price is $30 million.
|
|
Why is accounting entity concept an important principle
: Why is Accounting Entity Concept an important principle of accounting that a business should follow especially if it is a sole-proprietorship business?
|