Corporate Finance: The Core (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
4th Edition
ISBN: 9780134202648
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Textbook Question
Chapter 24, Problem 13P
Explain why the yield on a convertible bond is lower than the yield on an otherwise identical bond without a conversion feature.
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All else equal, which of the following factors would cause a bond to have a higher yield?
I. A bond with a higher rating (vs. a bond with a lower rating)
II. A callable bond (vs. a non-callable bond)
III. A Debenture (vs. an asset-backed bond)
Discuss how the price of a puttable bond will differ from the price of a similar, plain vanilla bond and the main determinants of this price difference.
What is a convertible bond? Is a convertible more or less attractive to a bond holder than a nonconvertable bond?
Chapter 24 Solutions
Corporate Finance: The Core (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
Ch. 24.1 - List four types of corporate debt that are...Ch. 24.1 - Prob. 2CCCh. 24.2 - Prob. 1CCCh. 24.2 - Prob. 2CCCh. 24.2 - What is an asset-backed security?Ch. 24.3 - Prob. 1CCCh. 24.3 - Prob. 2CCCh. 24.4 - What is a sinking fund?Ch. 24.4 - Do callable bonds have a higher or lower yield...Ch. 24.4 - Prob. 3CC
Ch. 24 - Explain some of the differences between a public...Ch. 24 - Why do bonds with lower seniority have higher...Ch. 24 - Explain the difference between a secured corporate...Ch. 24 - Prob. 4PCh. 24 - Prob. 5PCh. 24 - Suppose on January 15, 2013, the U.S. Treasury...Ch. 24 - Prob. 7PCh. 24 - Describe what prepayment risk in a GNMA is.Ch. 24 - Prob. 9PCh. 24 - Explain why bond issuers might voluntarily choose...Ch. 24 - General Electric has just issued a callable...Ch. 24 - Prob. 12PCh. 24 - Explain why the yield on a convertible bond is...Ch. 24 - Prob. 14P
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- What are convertibles are riskier than straight bonds?arrow_forwardAs compared to an equivalent noncallable bond, should a callable bond’s yield be higher, lower or the same and why?arrow_forwardWhat causes a gain or loss on the sale of a bond investment? Group of answer choices when the selling company negotiates a better price when the selling price of the bond differs from the book value (cost) of the bond when the selling company has unamortized discounts when the selling company has unamortized premiumsarrow_forward
- What are the circumstances in which one may buy a bond certificate at a price that is higher or lower than par?arrow_forwardWhich statement is not correct? A convertible bond is like a bond with a call option. The amount of DPS has negative impact on favorable income differential per share of a convertible bond. The value of a convertible bond cannot be less than its straight value. Exchangeable bonds give the bondholder the right to exchange the bonds for the common stock of the issuer of the bond. The conversion value of a convertible bond is directly related to its market price of common stock.arrow_forwardexplain how fluctuating market interest rates impact the price of a bond being sold on the secondary market. Why would a bond be selling at a premium or a discount?arrow_forward
- The theoretical floor value for a convertible bond is its A. pure bond value. B. onversion price. C. conversion value. D. par value.arrow_forwardGiven the assumptions from the previous problem, find the full price or flat price of the bond at the time of the trade.arrow_forwardExplain why are the bond prices for A and B different or the same? Explain your answer clearly.arrow_forward
- What economic circumstances might cause investors to take advantage of a bond's convertible feature?arrow_forwardWhich one of the following attributes is favorable for the convertible bond arbitrage? low convexity high conversion premium low implied volatility high duration low stock price volatilityarrow_forward
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