Vital Silence Corporation has just issued a 30-year callable, convertible bond with a coupon rate of 6.3 percent and annual coupon payments. The bond has a conversion price of $93.30. The company's stock is selling for $27.70 per share. The owner of the bond will be forced to convert if the bond's conversion value is ever greater than or equal to $1,130. The required return on an otherwise identical nonconvertible bond is 7.3 percent. Assume a par value of $1,000. a. What is the minimum value of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. If the stock price were to grow by 10.5 percent per year forever, how long would it take for the bond's conversion value to exceed $1,130? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Vital Silence Corporation has just issued a 30-year callable, convertible bond with a coupon rate of 6.3 percent and annual coupon payments. The bond has a conversion price of $93.30. The company's stock is selling for $27.70 per share. The owner of the bond will be forced to convert if the bond's conversion value is ever greater than or equal to $1,130. The required return on an otherwise identical nonconvertible bond is 7.3 percent. Assume a par value of $1,000. a. What is the minimum value of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. If the stock price were to grow by 10.5 percent per year forever, how long would it take for the bond's conversion value to exceed $1,130? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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The Latham Corporation is planning on issuing bonds that pay no interest but can be converted into $1,000 at maturity, 7 years from their purchase. To price these bonds competitively with other bonds of equal risk, it is determined that they should yield 6 percent, compounded annually. At what price should the Latham Corporation sell these bonds?

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