The appropriate way to make now-or-never decision on whether to convert or to stay with the bond.

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Answer 1

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Chapter 24, Problem 19PS

a)

Summary Introduction

To determine: The appropriate way to make now-or-never decision on whether to convert or to stay with the bond.

b)

Summary Introduction

To determine: The option value.

c)

Summary Introduction

To determine: The value of convertible bond.

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A convertible bond has the following features: Principal $1,000 Maturity date 25 years Interest $80 (8% Coupon) Call price $1,060 Exercise price $55 a share a.) The bond may be converted into how many shares? b.) If comparable non-convertible debt offered an annual yield of 12% what would be the value of this bond as debt? c.) If the stock were selling for $49.50, what is the value of the bond in terms of stock?

NUMERICAL QUESTION: Suppose that an investor is considering the purchase of a stock or a convertible bond of COMPANY S. The stock of the company can be purchased at €20. The following information is for the convertible bond. The bond has a face value of €1,000, an annual coupon rate of 4% (coupons are paid every six months) and a maturity of 3 years. Similar bonds are selling to yield 12% annually. The current market price of the convertible bond is €920. The Time left 1:11:10 ratio is 45. 1. What is the straight value of that bond? 2. What is the minimum value of the convertible bond? 3. Assume that the investor decided to purchase the convertible bond and that 2 months later, the price of the stock fell to €16. What is the return to the investor from having bought the convertible bond? Remember to input your answer without the % sign. For instance, an answer equal to 1.52% should be entered as 1.52.

Suppose you own a convertible bond that has a conversion ratio equal to 62. Each convertible bond has a face value equal to $1,000. The current market value of the company's common stock is $16, and the bond is selling for $1,042. If you want to liquidate your position today because you need money to pay your rent, should you sell the bond or should you convert the bond into common stock and then sell the stock? Explain your answer. Round your answers to the nearest dollar. Selling the bond would generate $_______ . Converting the bond and selling the common stock would generate $_______ . Thus, it would be better to SELL THE BOND / CONVERT THE BOND INTO COMMON STOCK AND THEN SELL THE STOCK

Answer 2

Question

Chapter 24, Problem 19PS

a)

Summary Introduction

To determine: The appropriate way to make now-or-never decision on whether to convert or to stay with the bond.

b)

Summary Introduction

To determine: The option value.

c)

Summary Introduction

To determine: The value of convertible bond.

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Answer 3

Question

Chapter 24, Problem 19PS

a)

Summary Introduction

To determine: The appropriate way to make now-or-never decision on whether to convert or to stay with the bond.

b)

Summary Introduction

To determine: The option value.

c)

Summary Introduction

To determine: The value of convertible bond.

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Answer 4

Question

Chapter 24, Problem 19PS

a)

Summary Introduction

To determine: The appropriate way to make now-or-never decision on whether to convert or to stay with the bond.

b)

Summary Introduction

To determine: The option value.

c)

Summary Introduction

To determine: The value of convertible bond.

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Answer 5

Chapter 24, Problem 19PS

a)

Summary Introduction

To determine: The appropriate way to make now-or-never decision on whether to convert or to stay with the bond.

b)

Summary Introduction

To determine: The option value.

c)

Summary Introduction

To determine: The value of convertible bond.

Answer 6

Chapter 24, Problem 19PS

a)

Summary Introduction

To determine: The appropriate way to make now-or-never decision on whether to convert or to stay with the bond.

Answer 7

Chapter 24, Problem 19PS

a)

Summary Introduction

To determine: The appropriate way to make now-or-never decision on whether to convert or to stay with the bond.

Answer 8

b)

Summary Introduction

To determine: The option value.

Answer 9

b)

Summary Introduction

To determine: The option value.

Answer 10

c)

Summary Introduction

To determine: The value of convertible bond.

Answer 11

c)

Summary Introduction

To determine: The value of convertible bond.

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 24 - Bond terms Use Table 24.1 (but not the text) to...Ch. 24 - Bond terms Look at Table 24.1: a. The AMAT bond...Ch. 24 - Bond terms Select the most appropriate term from...Ch. 24 - Prob. 5PS Ch. 24 - Bond terms Bond prices can fall either because of...Ch. 24 - Security and seniority a. As a senior bondholder,...Ch. 24 - Prob. 8PS Ch. 24 - Prob. 9PS Ch. 24 - Security and seniority a. Residential mortgages...Ch. 24 - Sinking funds For each of the following sinking...

The appropriate way to make now-or-never decision on whether to convert or to stay with the bond.

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To determine: The appropriate way to make now-or-never decision on whether to convert or to stay with the bond.

To determine: The option value.

To determine: The value of convertible bond.

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