Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Chapter 20, Problem 2P
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To calculate: The conversion ratio of the convertible securities issued.
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- A convertible bond has a par value of $1,000 and a conversion price of $40. The stockcurrently trades for $30 a share. What are the bond’s conversion ratio and conversionvalue at t =0?arrow_forwardWhiston Securities recently issued convertible bonds with a $1,000 parvalue. The bonds have a conversion price of $20 per share. What is the bonds’ conversionratio, CR?arrow_forwardA convertible bond has a par value of $1,000 and a conversion priceof $25. The stock currently trades for $22 a share. What are thebond’s conversion ratio and conversion value at t= 0? (40, $880)arrow_forward
- A convertible bond has a par value of $1,000 and a current market price of $850. The current price of the issuing firm's stock is $27, and the conversion ratio is 30 shares. The bond's market conversion value is Multiple Choice $729. $810. $810. $870. None of the options are correct.arrow_forwardA convertible bond is selling for $800. It has 10 years to maturity, a $1000 face value, and a 10% coupon paid semi-annually. The conversion price, specified at the time the convertible bond is issued, is $50 per share [in other words, if one bond is converted, the number of shares obtained in return equals the face value of the bond divided by this conversion price]. Non-convertible bonds issued by the same firm with the same face value, term to maturity and coupon are priced to yield an effective semi-annual return of 7.2%. The stock currently sells for $31.375 per share. a) What is the value of the convertible bond considered as a straight bond? b) If the bond is converted to shares, how many shares are equivalent to the convertible bond given its face value? What is the value of that share portfolio? c) Calculate the convertible bond’s option value.arrow_forwardA convertible bond is selling for $800. It has 10 years to maturity, a $1000 face value, and a 10% coupon paid semi-annually. The conversion price, specified at the time the convertible bond is issued, is $50 per share [in other words, if one bond is converted, the number of shares obtained in return equals the face value of the bond divided by this conversion price]. Non-convertible bonds issued by the same firm with the same face value, term to maturity and coupon are priced to yield an effective semi-annual return of 7.2%. The stock currently sells for $31.375 per share. a) What is the value of the convertible bond considered as a straight bond? b) If the bond is converted to shares, how many shares are equivalent to the convertible bond given its face value? What is the value of that share portfolio?arrow_forward
- A convertible bond has a par value of $1,000 and a conversion price of $40. The stock currently trades for $30 a share. What are the bond's conversion ratio and conversion value at t=0? (CR = 25; P (CR) = $30 x 25 = $750)arrow_forwardYou bought a convertible bond issued by Zip Corp which has a conversion ratio of 50 common shares for each $1,000 bond. A) At what stock price per share would you make a profit (“in the money”) if you bought the bond at par? B) What would you expect the bond to sell for in the market if Zip Corp’s stock trades at $28.50 per share?arrow_forwardA certain convertible bond has a conversion ratio of 30 and a conversion premium of 15%. The current market price of the underlying common stock is $30. What is the bond's conversion equivalent?SaThe bond's conversion equivalent is $(Round to the nearest cent.)arrow_forward
- A firm has an outstanding bond with a $1,000 par value that is convertible at $40 per share of common stock. If the current market value of common stock per share is $45, the conversion value of the bond is a. 1,000 b. 880 c. 1,125 d. 1,200arrow_forwardMaple Aircraft has issued a 4¾% convertible subordinated debenture due 3 years from now. The conversion price is $47 and the debenture is callable at 102.75% of face value. The market price of the convertible is 91% of face value, and the price of the common is $41.50. Assume that the value of the bond in the absence of a conversion feature is about 65% of face value. In the absence of the conversion feature, what is the current yield and yield to maturity? What is the conversion ratio of the debenture? If the conversion ratio were 50, what would be the conversion price? What is the conversion value? At what stock price is the conversion value equal to the bond value? Can the market price be less than the conversion value? How much is the convertible holder paying for the option to buy one share of common stock? . By how much does the common have to rise after three years to justify conversion? please explain in full detail.Thank you.arrow_forwardA conversion of a face value $1 million convertible bond for $1 million of common stock would most likely be: B . reported as a $1 million fi nancing cash outfl ow and infl ow.arrow_forward
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