What is maximum price you should pay for bond

Assignment Help Financial Management

Reference no: EM131973789

1) You have just learned about a bond soon to be issued by XYZ Inc. that has the proper risk characteristics of your portfolio. The bond has a par value of $1,000, 15 years to maturity, a 9% coupon, and pays interest semiannualy. The bond is convertible into 50 shares of XYZ common stock, at the discretion of the bondholder. XYZ common stock is selling for $15 per share. The bond can also be called at any time by the firm for $1,050.

A) If your cost of capital is 12%, what is the maximum price you should pay for the bond?

B) You purchased the bond described above at its fair market price when issued. That was five years ago. You just recieved the tenth interest payment. Bonds of this quality are currently being priced to yield 10%. Recall that when you bought the bond, XYZ common stock was selling for $15 per share. During the last five years, the price of the common stock has on average increased 8% per year. What is the price of the bond in today's market?

C) If XYZ were to call the bond today, what would you do?

Reference no: EM131973789

Questions Cloud

Describe the affects the newly devised drivers licenses have : From the e-Activity, describe the affects the newly devised driver's licenses may have on security among various public locations.

Analyze the components of altman z-score : Analyze the components of Altman's Z-Score. Suggest at least two decisive measures that a company could take in order to lower its probability of bankruptcy.

Difference between cash flows and accounting flows : Why do we prepare a capital budget? What is the difference between cash flows and accounting flows within the capital budget process?

Quality of care for minority patients : We see that: "While there is no direct evidence that provider biases affect the quality of care for minority patients

What is maximum price you should pay for bond : If your cost of capital is 12%, what is the maximum price you should pay for the bond?

Describe the precautionary measures taken by colleges : Describe the precautionary measures taken by colleges and universities, airlines, and retail stores to prepare for probable issues before they arise.

Encounter and approaches to overcoming problems : Describe some of the problems one might expect to encounter and approaches to overcoming these problems

Design a plan to address concern and prevent future injuries : Identify ergonomic hazards to which workers may be exposed, particularly the ones leading to back injury, and design a plan to address this concern

What was Wallace total long-term debt and liabilities : What was Wallace's total long-term debt in 2016? What were Wallace's total liabilities in 2016?

User Account

All Pages