The table below provides market data from October 1, 2014, Solve for the unknown variables. The Premium
Question:
The table below provides market data from October 1, 2014, Solve for the unknown variables. The "Premium" column refers to the percentage extra an investor would pay for the stock if it purchased the bond at the market price and immediately converted at the conversion ratio. Assume that the bonds pay semiannually, that they mature at the end of the year shown, and that today is October 1, 2014. Thus the next payment will be in 3 months or 0.5 of a semiannual payment period. (Ignore any slight rounding.)
Yield to Maturity Premium Conversion Conversion Ratio Coupon (%) (%) Maturity (%) Price Issuer Price Price H&R Real Estate 4.50 Dec 2016 $21.67 3.17 30.53 4.27 27.50 Chemtrade Logistics 5.00 $20.57 5.75 Dec 2018 111.75 2.79 1.79 Cineplex Galaxy $40.99 4.50 Dec 2018 105.81 44.56 56.00 4.63 Rogers Sugar 5.75 Dec 2018 104.25 60.73 13.89 5.76 145.55 $4.62 Canexus 5.75 Dec 2018 99.95 Pembina Pipeline $46.64 5.75 Dec 2018 158.00 0.04 29.53 5.25 Vicwest Dec 2018 100.50 5.12 71.43 5.29
Step by Step Answer:
Coupon Maturity Price Yield Premium Conversion Ratio Conversion Price Stock Price HR Real Estate 450 ...View the full answer
Financial Management Theory And Practice
ISBN: 978-0176583057
3rd Canadian Edition
Authors: Eugene Brigham, Michael Ehrhardt, Jerome Gessaroli, Richard Nason
Related Video
Bond valuation is the process of determining the worth of a bond. It is based on the present value of the bond\'s future cash flows, which include coupon payments and the return of the bond\'s face value (or \"principal\") at maturity. The discount rate used in the calculation is directly tied to prevailing interest rates, and a rise in interest rates will decrease the present value of the bond and thus lower its price. Conversely, a fall in interest rates will increase the present value of the bond and raise its price. Interest rates serve as a benchmark for determining the value of a bond, as they determine the discount rate used in the bond valuation calculation. The most commonly used measure of interest rates is the yield to maturity (YTM), which represents the internal rate of return of an investment in a bond if the investor holds the bond until maturity and receives all scheduled payments. Yield to maturity is a function of the coupon rate, the current market price of the bond, the face value of the bond, and the number of years remaining until maturity. By comparing the yield to maturity of a bond to prevailing market interest rates, an investor can assess the relative value of the bond.
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