Convertible bonds outstanding

Assignment Help Financial Management

Reference no: EM131933592

Defense Systems Inc. has convertible bonds outstanding that are callable at $1,020. The bonds are convertible into 20 shares of common stock. The stock is currently selling for $61.50 per share.

a. If the firm announces it is going to call the bonds at $1,020, what action are bondholders likely to take?

Bondholders will most likely convert their bonds to shares of common stock.

Bondholders will most likely allow their bonds to be called.

b. Assume that instead of the call feature, the firm has the right to drop the conversion ratio from 20 down to 18.00 after 5 years and down to 16.00 after 10 years. If the bonds have been outstanding for four years and 11.00 months, what will the price of the bonds be if the stock price is $64.90? Assume the bonds carry no conversion premium. (Do not round intermediate calculations and round your answer to 2 decimal places.)

c. Further assume that you anticipate that the common stock price will be up to $68.80 in two months. Considering the conversion feature, should you convert now or continue to hold the bond for at least two more months?

Reference no: EM131933592

Questions Cloud

What is portfolio standard deviation : What is the portfolio standard deviation if the correlation of these two stocks is .62?

Estimate venture required rate of return based : Estimate a venture’s required rate of return based on the following information: current year’s net income = $20,000;

Swiss franc selling at discount or premium in forward market : Was the Swiss franc selling at a discount or premium in the forward market? How many francs will the Swiss bank deliver in six months to get the U.S. dollars?

Speculative premium per warrant when warrants were purchased : What was the intrinsic value of a warrant at the time of purchase? What was the speculative premium per warrant when the warrants were purchased?

Convertible bonds outstanding : Defense Systems Inc. has convertible bonds outstanding that are callable at $1,020. The bonds are convertible into 20 shares of common stock.

What is the speculative premium on warrant : What is the intrinsic (minimum) value of this warrant? What is the speculative premium on this warrant?

Leveraged buy-out resulting in long-term debt : The Berlin Brewing Company was purchased three years ago in a leveraged buy-out resulting in long-term debt for the Company of $500 million.

What is conversion value of the bond and conversion premium : What is the conversion value of the bond? What is the conversion premium?

Convertible bond outstanding with coupon rate : Standard Olive Company of California has convertible bond outstanding with coupon rate of 5 percent and maturity date of 10 years. What is the conversion price?

User Account

All Pages