10. The common stock of Southern Airlines currently sells for $34, and its 10-years-to-maturity 9% convertible debentures (issued at par, or $1,000) sell for $850. Each debenture can be converted into 28 shares of common stock at any time before maturity. The YTM for straight debt is 13%. (Same numbers as the previous problem). What is the current convertibility value?

a. $67.05

b. $121.31

c. $35.71

d. $217.05

e. $782.95

11. Mikkleson Mining stock is selling for $42 per share, has an expected dividend in the coming year of $1.80, and has an expected constant growth rate of 6.5%. The company is considering issuing a 10-year convertible bond that would be priced at its $1,000 par value. The bonds would have an 8.00% annual coupon, and each bond could be converted into 20 shares of common stock. The required rate of return on an otherwise similar nonconvertible bond is 10.00%. Company will call the bond when the conversion value exceeds $1,150. What is the estimated floor price of the convertible at the end of Year 3?

a. $794.01

b. $835.81

c. $902.63

d. $952.81

e. $1,014.68

12. Mikkleson Mining stock is selling for $42 per share, has an expected dividend in the coming year of $1.80, and has an expected constant growth rate of 6.5%. The company is considering issuing a 10-year convertible bond that would be priced at its $1,000 par value. The bonds would have an 8.00% annual coupon, and each bond could be converted into 20 shares of common stock. The required rate of return on an otherwise similar nonconvertible bond is 10.00%. Company will call the bond when the conversion value exceeds $1,150. When is the bond expected to be called?

a. 5 years

b. 6 years

c. 7 years

d. 8 years

e. 10 years

13. Mikkleson Mining stock is selling for $42 per share, has an expected dividend in the coming year of $1.80, and has an expected constant growth rate of 6.5%. The company is considering issuing a 10-year convertible bond that would be priced at its $1,000 par value. The bonds would have an 8.00% annual coupon, and each bond could be converted into 20 shares of common stock. The required rate of return on an otherwise similar nonconvertible bond is 10.00%. Company will call the bond when the conversion value exceeds $1,150. When is the cost of capital for this convertible bond?

a. 8.0%

b. 10.0%

c. 10.13%

d. 10.45%

e. 12.31%