What action are bondholders likely to take

Assignment Help Finance Basics

Reference no: EM131792586

Question: Swift Shoe Co. has convertible bonds outstanding that are callable at $1,080. The bonds are convertible into 22 shares of common stock. The stock is currently selling for $59.25 per share.

a. If the firm announces it is going to call the bonds at $1,080, what action are bondholders likely to take, and why?

b. Assume that instead of the call feature, the firm has the right to drop the conversion ratio from 22 down to 20 after 5 years and down to 18 after 10 years. If the bonds have been outstanding for four years and 11 months, what will the price of the bonds be if the stock price is $60? Assume the bonds carry no conversion premium.

c. Further assume that you anticipate that the common stock price will be up to $63.50 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: EM131792586

Questions Cloud

Prepare an income statement through gross profit : Stein Hardware Store completed the following merchandising transactions in the month of May. Prepare an income statement through gross profit for the month

What is the current yield on the bond : The Olsen Mining Company has been very successful in the last five years. Its $1,000 par value convertible bonds have a conversion ratio of 32.

Draw graph that include pure bond value and conversion value : Draw a graph that includes the pure bond value and the conversion value but not the convertible bond price. For the stock price on the horizontal axis.

Write a brief summary of the history of islam : Write a Brief summary of the history of Islam. Describe significant differences and similarities in how the branches of Islam practice their traditions.

What action are bondholders likely to take : If the firm announces it is going to call the bonds at $1,080, what action are bondholders likely to take, and why?

Explain accounting for the disposition of fixed assets : Explain accounting for the disposition of fixed assets. What are the differences in how the exchanges of assets are handled

Explain the role of biology in sexual orientation : The development of sexual attraction begins in the human body as a glandular response to sex hormones.

Make a list of ideas that relate to your subject : Make a list of ideas that relate to your subject (see page 27) and edit errors in grammar, punctuation and spelling (see pages 35- 37);

Why does the conversion premium has shrunk : Vernon Glass Company has $20 million in 10 percent convertible bonds outstanding. The conversion ratio is 50, the stock price is $19, and the bond matures.

User Account

All Pages