UPENN: LOOSE LEAF CORP.FIN W/CONNECT
17th Edition
ISBN: 9781260361278
Author: Ross
Publisher: McGraw-Hill Publishing Co.
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 24, Problem 7QP
Convertible Bond Value Sportime Fitness Center, Inc., issued convertible bonds with a conversion price of $49. The bonds are available for immediate conversion. The current price of the company’s common stock is $43 per share. The current market price of the convertible bonds is $990. The convertible bonds' straight value is not known.
- a. What is the minimum price for the convertible bonds?
- b. Explain the difference between the current market price of each convertible bond and the value of the common stock into which it can be immediately converted.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Whiston 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?
The bonds of Goniff Bank & Trust have a conversion premium of $34. Their conversion price is $25. The common stock price is $19.50.
Assume each bond has a $1,000 par value.
What is the price of the convertible bonds? (Do not round intermediate calculations and round your answer to 2 decimal places.)
Mc
Graw
Convertible bond price
un
Prev
1 of 10
MacBook Air
Next >
A company issues a bond with a par value of $500,000 and a contract rate of 5%. Explain the concept of market rate. Why would
a company issue a bond at a discount or a premium? How is bond price impacted? If the bond is issued at a discount or a
premium, does it impact the interest or principal paid? Why or why not? (Answer in 5-10 sentences)
Chapter 24 Solutions
UPENN: LOOSE LEAF CORP.FIN W/CONNECT
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...
Knowledge Booster
Learn more about
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
- A convertible bond has a par value of $1,000, but its current market price is at $975. The current price of the issuing company's stock is $26, and the conversion ratio is 34 shares. What is the bond's market conversion value?arrow_forward1 ences The bonds of Generic Labs Inc. have a conversion premium of $60. Their conversion price is $25. The common stock price is $21.00. What is the price of the convertible bond? (Do not round intermediate calculations and round your answer to 2 decimal places.) Mc Graw Hill Convertible bond price Prev 2 of 10 MacBook Air Next >arrow_forwardSuppose you own a convertible bond that has a conversion ratio equal to 58. Each convertible bond has a face value equal to $1,000. The current market value of the company's common stock is $17, and the bond is selling for $1,036. 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 .arrow_forward
- a. Assuming the bonds will be rated AA, what will the price of the AA-rated bonds be? b. How much total principal amount of these bonds must HMK issue to raise $9million today, assuming the bonds are AA rated? (Because HMK cannot issue a fraction of a bond, assume all fractions are rounded to the nearest whole number.) c. What must the rating of the bonds be for them to sell at par? d. Suppose that when the bonds are issued, the price of each bond is $970.43. What is the likely rating of the bonds?Are they junk bonds? Note: Assume annual compounding.arrow_forwardCconvertable bonds are: 1. Options attached to bonds that give the bond holder the right to purchase stock at a preset price without giving up the bond. 2. Bonds in which the issue matures (Converts) a little each year. 3. Bonds colateralized with certain types of automobiles 4. Bonds that may be converted to a certain number of shares of stock determined by the conversion ratio. A. Only 1 B. 1 & 2 C. 1, 2, & 3 D. Only 4 E. 1 & 3arrow_forwardSuppose 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 STOCKarrow_forward
- Concord Corp. issued $10000000 of par value 8% convertible bonds at 98. If thr bonds had not been convertible, the company's investment banker estimates they would have been sold at 93. Concord Corp. has adopted ASPE, and would like to explore all option available to report the convertible bond.Option 1: Residual MethodOption 2: Value equity component at zero.arrow_forwardBreuer Investment's convertible bonds have a $1,000 par value and a conversion price of $45 a share. What is the convertible issue's conversion ratio? Round your answer to two decimal places.arrow_forwardAccording to the theory, premium bonds, discount bonds, and face value bonds at the expiry date will have a value of $1,000. Why is the value is $1,000 at the expiring day? Explain.arrow_forward
- (a) Bonds with a face amount of $10,000,000 have a stated interest rate of 5%. The current market rate of interest is 6%. Will these bonds sell (issue) at a price that is less than, equal to, or more than $10,000,000? (b) Bonds with a face amount of $10,000,000 have a stated interest rate of 7%. The current market rate of interest is 6%. Will these bonds sell (issue) at a price that is less than, equal to, or more than $10,000,000?arrow_forwardAssume bonds payable are amortized using the straight-line amortization method unless stated otherwise. Pricing bonds Bond prices depend on the market rate of interest, stated rate of interest and time. Requirements Compute the price of the following 8% bonds of Country Telecom. $100,000 issued at 75.25 $100,000 issued at 94.50 $100,000 issued at 103 50 $100,000 issued at 94.50 $100,000 issued at 103.25 2. Which bond will Country Telecom have to pay the most to retire at maturity? Explain your answer.arrow_forward← The Airfoil Aircraft Company has issued 5% convertible bonds that mature October 1, 2029. Suppose the bonds are issued October 1, 2021, and pay interest each April 1 and October 1. (Click the icon to view the bond data.) Read the requirements. Requirement 1. Assume the bonds are issued at a price of 93.4. Using the straight-line method of amortization for bond discount: a. Calculate interest expense on bonds payable for each semiannual interest payment period. Use two decimal places. (Round intermediary and final calculations to the nearest cent.) The total interest expense each interest period if the bonds are issued at 93.4 isarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education
Journalizing Bonds Payable/Amortization of a Premium; Author: TLC Tutoring;https://www.youtube.com/watch?v=5gEpAFFnIE8;License: Standard YouTube License, CC-BY
Investing Basics: Bonds; Author: TD Ameritrade;https://www.youtube.com/watch?v=IuyejHOGCro;License: Standard YouTube License, CC-BY