CORPORATE FINANCE (LL)-W/ACCESS
11th Edition
ISBN: 9781259976360
Author: Ross
Publisher: MCG
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Textbook Question
Chapter 24, Problem 6QP
Convertible Bond Value An analyst has recently informed you that at the issuance of a company’s convertible bonds, one of the two following sets of relationships existed:
| Scenario A | Scenario B | |
| Face |
$1.000 | $1 .000 |
| Straight value of convertible bond | 900 | 950 |
| Market value of convertible bond | 1,000 | 900 |
Assume the bonds are available for immediate conversion. Which of the two scenarios do you believe is more likely? Why?
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QUESTION TWO
a) The fair value of a bond is based on the present value of expected future cash flows. Using a hypothetical example, determine the value of a bond whose maturity is 5 years.
b) Bond prices fluctuate inversely with market interest rates. Cognisant of this fact, companies issue bonds of various features. Justify why a company may prefer to issues one type of bond to another.
Maple 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.
The following facts are available about a convertible bond: Market Price of issuer's common stock = S = 100, uS = 110, dS = 90, Interest Rate = 3%, Face Value of a Convertible Bond (E) = 1,000. Using the One Period Binomial Model to create a replicating portfolio, calculate the price of this convertible bond.
a. $1,001.67
b. $1,018.51
c. $1,033.98
d. $1,041.15
Do it correctly with step by step explanation.
Chapter 24 Solutions
CORPORATE FINANCE (LL)-W/ACCESS
Ch. 24 - Prob. 1CQCh. 24 - Prob. 2CQCh. 24 - Convertible Bonds and Stock Volatility Suppose you...Ch. 24 - Convertible Bond Value What happens to the price...Ch. 24 - Prob. 5CQCh. 24 - Warrants and Convertibles What is wrong with the...Ch. 24 - Warrants and Convertibles Why do firms issue...Ch. 24 - Convertible Bonds Why will convertible bonds not...Ch. 24 - Convertible Bonds When should a firm force...Ch. 24 - Conversion Price A convertible bond with a par...
Ch. 24 - Conversion Ratio A convertible bond with a par...Ch. 24 - Conversion Premium Eckely, Inc., recently issued...Ch. 24 - Convertible Bonds Hannon Home Products, Inc.,...Ch. 24 - Prob. 5QPCh. 24 - Convertible Bond Value An analyst has recently...Ch. 24 - Convertible Bond Value Sportime Fitness Center,...Ch. 24 - Convertible Bonds You own a callable, convertible...Ch. 24 - Prob. 9QPCh. 24 - Convertible Bonds Vital Silence Corp. bas just...Ch. 24 - Convertible Bonds Rob Stevens is the chief...Ch. 24 - Prob. 12QPCh. 24 - Prob. 13QPCh. 24 - Prob. 14QPCh. 24 - Warrant Value Superior Clamps, Inc., has a capital...Ch. 24 - Prob. 16QPCh. 24 - SS AIR'S CONVERTIBLE BOND Chris Guthrie was...Ch. 24 - What is the floor value of the SS Air convertible...Ch. 24 - What is the conversion ratio of the bond?Ch. 24 - What is the conversion premium of the bond?Ch. 24 - What is the value of the option?Ch. 24 - Is there anything wrong with Todds argument that...Ch. 24 - Is there anything wrong with Marks argument that a...Ch. 24 - Prob. 8MCCh. 24 - During the debate, a question comes up concerning...
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