The bond may be converted into how many shares

Assignment Help Financial Management

Reference no: EM13944537

A convertible bond has the following features (rounding allowed in answers):

Face Value: $1,000

Maturity: 10 years

Annual coupon: $50

Conversion Price: $40

a. The bond may be converted into how many shares?

b. What is the current value of the convertible as a bond if prevailing interest rates are 6% (n=10)?

c. What is the current value of the convertible as a stock if the current stock price is $38 per share?

d. Based on (b) and (c) and assuming a market premium of $40, what should the current price of the convertible bond be?

Reference no: EM13944537

Questions Cloud

More reinvestment rate risk than do long-term bonds : All else equal, long-term bonds have more interest rate risk than do short-term bonds. All else equal, high-coupon bonds have more reinvestment rate risk than do low-coupon bonds. All else equal, short-term bonds have more reinvestment rate risk than..

Debt without changing the cost of debt or equity : Jefferson International’s debt is less expensive than its equity. If it could issue more debt without changing the cost of debt or equity, which of the following would occur?

What is cost of preferred equity : Acme Services’ CFO is considering whether to take on a new project that has average risk. She has collected the following information: • The company has outstanding bonds that mature in 26 years. What is Acme’s cost of preferred equity?

Stock price decline after firms dividend cut announcement : Although we say that a firm's dividend policy does not matter in an ideal world without frictions (i.e. no taxes, no transaction or issuance costs), in practice, we often observe firms that announce a dividend cut experience a decline in their stock ..

The bond may be converted into how many shares : A convertible bond has the following features (rounding allowed in answers): The bond may be converted into how many shares? What is the current value of the convertible as a bond if prevailing interest rates are 6% (n=10)? What is the current value ..

New issue of common stock-the required return : Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt-equity ratio of .63. It’s considering building a new $65.3 million manufacturing facility. If the tax rate is 38 percent, A new issu..

What will be the approximate capital gain of this bond : A bond has a par value of $1,000, a time to maturity of 10 years, and a coupon rate of 8.70% with interest paid annually. If the current market price is $870, what will be the approximate capital gain of this bond over the next year if its yield to m..

In the market-the rate of return of the risk free asset : Suppose in the market, the rate of return of the risk free asset is 10%. The tangency portfolio has an expected rate of return of 20% and a standard deviation of 20%. In a mean-standard deviation graph, show all possible portfolios of risky asset, th..

Target debt-equity ratio-what is its pretax cost of debt : Blue Bull, Inc., has a target debt-equity ratio of .87. Its WACC is 8.6 percent, and the tax rate is 30 percent. If the company’s cost of equity is 12.7 percent, what is its pretax cost of debt? If the aftertax cost of debt is 5.3 percent, what is t..

User Account

All Pages