APPENDEX B

APPENDEX D

Given the following information concerning a convertible bond: Coupon: 6 percent ($60 per $1,000 bond) Exercise price: $25 Maturity date: 25 years Call price: $1,030 Price of the common stock: $31 a. If this bond were nonconvertible, what would be its approximate value if comparable interest rates were 9 percent? Assume that the bond pays interest annually. Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar. $ 705 b. How many shares can the bond be converted into? Round down your answer to the nearest whole number. 40 shares c. What is the value of the bond in terms of stock? Use the number of shares into which the bond may be converted into from part a. Round your answer to the nearest dollar. $ 1240 d. What is the current minimum price that the bond will command? Round your answer to the nearest dollar. $ e. Is there any reason to anticipate that the firm will call the bond? The price of the stock is -Select- the bond's exercise price. So the firm -Select- v force conversion by calling the bond. f. What do investors receive if they do not convert the bond when it is called? Round your answer to the nearest dollar. g. If the bond were called, would it be advantageous to convert? It -Select- advantageous to convert since the bond's value as stock is -Select- the call price. Interest Factors for the Present Value of One Dollar 1% 2% 3% 4% 9% 15% Time Period (e.g. year) 1 2 3 4 5 Nm 5% .990 980 .971 1962 952 980 1961 943 925 907 .971 .942 .915 .889 864 961 924 .889 855 .823 951 906 863 822 .784 6% 943 .890 .840 .792 .747 7% .935 .873 .816 .763 .713 8% .926 .857 .794 .735 .681 10% 12% 14% 917 .909 .893 .877 870 .842 .826 .797 .769 .756 .772 .751 .712 .675 .658 .708 .683 636 592 .572 .650 .621 567 519 497 16% .862 .743 .641 .552 .476 18% .847 .718 .609 .516 437 20% .833 .694 1579 .482 402 24% 28% .806 .781 .650 .610 .524 -477 423 373 .341 .291 6 7 8 9 10 942 .888 .838 790 .746 .705 933 .871 .813 760 711 .665 923 .853 .789 .731 .677 627 914 .837 .766 .703 .645 592 905 820 744 .676 .614 .558 .666 630 596 564 507 456 .432 .623 583 547 1513 .452 400 376 .582 540 .502 467 404 351 .327 .544 .500 .460 424 361 308 .284 508 .463 422 .386 .322 .270 .247 410 370 354 314 .305 266 .263 .226 .227 .191 335 .275 .279 .222 .233.179 .194 144 .162 .116 .227 .178 .139 .108 .085 11 12 13 14 15 .896 .887 .879 .870 .861 .804 .788 .773 .758 .743 .722 .650 .701 .625 .681 .601 .661 .577 .642 555 .585 .557 .530 505 481 .527 .497 .469 442 .417 475 .444 415 388 .362 429 .397 .368 .340 .315 .388 356 .326 .299 .275 .350 .319 .290 .263 .239 .287 .257 .229 .205 .183 .237 -208 -182 .160 .140 .215 .187 .163 .141 .123 .195 .168 .145 .125 .108 .162 .137 .116 .099 .084 .135 .094 .112 .076 .093 061 .078 .049 .065 .040 .066 .052 .040 .032 .025 16 17 18 19 20 .853 .844 .836 .828 .820 .728 .714 .700 .686 .673 .623 .605 .587 .570 .554 .534 .513 494 475 .456 458 436 416 .396 377 .394 .371 .350 .331 .312 339 -317 .296 .276 .258 .292 .270 .250 .232 .215 .252 .231 .212 .194 .178 .218 .198 .180 .164 .149 .163.123 .107 .146 108 .093 .130.095 .081 .116 .083.070 .104 .073 061 .093 .071 .080 060 .069 .051 .060 .043 .051 .037 .054 .032.019 .045 026 015 .038 021 .012 .031 .017 .009 .026 .014 .007 25 .780 .610 .478 .375 .295 .233 .184 .146 .116 .092 .059 .038 .030 .024 .016 .010 .005 .002 30 .742 .552 412 308 .231 .174 .131 .099 .075 .057 .033 020 .015 .012 .007 .004 .002 .001 Interest Factors for the Present Value of an Annuity of One Dollar 5% 9% Time Period (e.g. year) 1 2 3 4 5 1% 2% 3% 4% 6% 7% 8% 10% 12% 14% 16% 18% 20% 24% 28% 32% 36% 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.893 0.877 0.862 0.847 0.833 0.806 0.781 0.758 0.735 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.690 1.647 1.605 1.566 1.528 1.457 1.392 1.332 1.276 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.402 2.322 2.246 2.174 2.106 1.981 1.868 1.766 1674 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.037 2.914 2.798 2.690 2.589 2.404 2.241 2.096 1.966 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.605 3.433 3.274 3.127 2.991 2.745 2.532 2.345 2.181 6 5.795 5.601 5.417 5.242 5.076 4.917 4.766 4.623 4.486 4.355 4.111 3.889 3.685 3.498 3.326 3.020 2.759 2.534 2.399 7 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.564 4.288 4.039 3.812 3.605 3.242 2.937 2.678 2.455 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 4.968 4.639 4.344 4.078 3.837 3.421 3.076 2.786 2.540 9 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.985 5.759 5.328 4.946 4.607 4.303 4.031 3.566 3.184 2.868 2.603 10 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.650 5.216 4.833 4.494 4.193 3.682 3.269 2.930 2.650 000 11 12 13 14 15 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 5.988 5.453 5.029 4.656 4.327 3.776 3.335 2.978 2.683 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 6.194 5.660 5.197 4.793 4.439 3.851 3.387 3.013 2.708 12.134 11.348 10.635 9.986 9.394 8.534 8.358 7.904 7.487 7.103 6.424 5.842 5.342 4.910 4.533 3.912 3.427 3.040 2.727 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.628 6.002 5.468 5.008 4.611 3.962 3.459 3.061 2.740 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.060 7.606 6.811 6.142 5.575 5.092 4.675 4.001 3.483 3.076 2.750 16 14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.312 7.824 6.974 6.265 5.669 5.162 4.730 4.003 3.503 3.088 2.758 17 15.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.002 7.120 6.373 5.749 5.222 4.775 4.059 3.518 3.097 2.763 18 16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.2017.250 6.467 5.818 5.273 4.812 4.080 3.529 3.104 2.767 19 17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.366 6.550 5.877 5.316 4.844 4.097 3.539 3.109 2.770 20 18.046 16.351 14.877 13.590 12.462 11.470 10.594 9.818 9.128 8.514 7.469 6.623 5.929 5.353 4.870 4.110 3.546 3.113 2.772 25 22.023 19.523 17.413 15.622 14.094 12.783 11.654 10.675 9.823 9.077 7.843 6.873 6.097 5.467 4.948 4.147 3.564 3.122 2.776 30 25.808 22.937 19.600 17.292 15.373 13.765 12.409 11.258 10.274 9.427 8.055 7.003 6.177 5.517 4.979 4.160 3.569 3.124 2.778 Given the following information concerning a convertible bond: Coupon: 6 percent ($60 per $1,000 bond) Exercise price: $25 Maturity date: 25 years Call price: $1,030 Price of the common stock: $31 a. If this bond were nonconvertible, what would be its approximate value if comparable interest rates were 9 percent? Assume that the bond pays interest annually. Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar. $ 705 b. How many shares can the bond be converted into? Round down your answer to the nearest whole number. 40 shares c. What is the value of the bond in terms of stock? Use the number of shares into which the bond may be converted into from part a. Round your answer to the nearest dollar. $ 1240 d. What is the current minimum price that the bond will command? Round your answer to the nearest dollar. $ e. Is there any reason to anticipate that the firm will call the bond? The price of the stock is -Select- the bond's exercise price. So the firm -Select- v force conversion by calling the bond. f. What do investors receive if they do not convert the bond when it is called? Round your answer to the nearest dollar. g. If the bond were called, would it be advantageous to convert? It -Select- advantageous to convert since the bond's value as stock is -Select- the call price. Interest Factors for the Present Value of One Dollar 1% 2% 3% 4% 9% 15% Time Period (e.g. year) 1 2 3 4 5 Nm 5% .990 980 .971 1962 952 980 1961 943 925 907 .971 .942 .915 .889 864 961 924 .889 855 .823 951 906 863 822 .784 6% 943 .890 .840 .792 .747 7% .935 .873 .816 .763 .713 8% .926 .857 .794 .735 .681 10% 12% 14% 917 .909 .893 .877 870 .842 .826 .797 .769 .756 .772 .751 .712 .675 .658 .708 .683 636 592 .572 .650 .621 567 519 497 16% .862 .743 .641 .552 .476 18% .847 .718 .609 .516 437 20% .833 .694 1579 .482 402 24% 28% .806 .781 .650 .610 .524 -477 423 373 .341 .291 6 7 8 9 10 942 .888 .838 790 .746 .705 933 .871 .813 760 711 .665 923 .853 .789 .731 .677 627 914 .837 .766 .703 .645 592 905 820 744 .676 .614 .558 .666 630 596 564 507 456 .432 .623 583 547 1513 .452 400 376 .582 540 .502 467 404 351 .327 .544 .500 .460 424 361 308 .284 508 .463 422 .386 .322 .270 .247 410 370 354 314 .305 266 .263 .226 .227 .191 335 .275 .279 .222 .233.179 .194 144 .162 .116 .227 .178 .139 .108 .085 11 12 13 14 15 .896 .887 .879 .870 .861 .804 .788 .773 .758 .743 .722 .650 .701 .625 .681 .601 .661 .577 .642 555 .585 .557 .530 505 481 .527 .497 .469 442 .417 475 .444 415 388 .362 429 .397 .368 .340 .315 .388 356 .326 .299 .275 .350 .319 .290 .263 .239 .287 .257 .229 .205 .183 .237 -208 -182 .160 .140 .215 .187 .163 .141 .123 .195 .168 .145 .125 .108 .162 .137 .116 .099 .084 .135 .094 .112 .076 .093 061 .078 .049 .065 .040 .066 .052 .040 .032 .025 16 17 18 19 20 .853 .844 .836 .828 .820 .728 .714 .700 .686 .673 .623 .605 .587 .570 .554 .534 .513 494 475 .456 458 436 416 .396 377 .394 .371 .350 .331 .312 339 -317 .296 .276 .258 .292 .270 .250 .232 .215 .252 .231 .212 .194 .178 .218 .198 .180 .164 .149 .163.123 .107 .146 108 .093 .130.095 .081 .116 .083.070 .104 .073 061 .093 .071 .080 060 .069 .051 .060 .043 .051 .037 .054 .032.019 .045 026 015 .038 021 .012 .031 .017 .009 .026 .014 .007 25 .780 .610 .478 .375 .295 .233 .184 .146 .116 .092 .059 .038 .030 .024 .016 .010 .005 .002 30 .742 .552 412 308 .231 .174 .131 .099 .075 .057 .033 020 .015 .012 .007 .004 .002 .001 Interest Factors for the Present Value of an Annuity of One Dollar 5% 9% Time Period (e.g. year) 1 2 3 4 5 1% 2% 3% 4% 6% 7% 8% 10% 12% 14% 16% 18% 20% 24% 28% 32% 36% 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.893 0.877 0.862 0.847 0.833 0.806 0.781 0.758 0.735 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.690 1.647 1.605 1.566 1.528 1.457 1.392 1.332 1.276 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.402 2.322 2.246 2.174 2.106 1.981 1.868 1.766 1674 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.037 2.914 2.798 2.690 2.589 2.404 2.241 2.096 1.966 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.605 3.433 3.274 3.127 2.991 2.745 2.532 2.345 2.181 6 5.795 5.601 5.417 5.242 5.076 4.917 4.766 4.623 4.486 4.355 4.111 3.889 3.685 3.498 3.326 3.020 2.759 2.534 2.399 7 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.564 4.288 4.039 3.812 3.605 3.242 2.937 2.678 2.455 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 4.968 4.639 4.344 4.078 3.837 3.421 3.076 2.786 2.540 9 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.985 5.759 5.328 4.946 4.607 4.303 4.031 3.566 3.184 2.868 2.603 10 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.650 5.216 4.833 4.494 4.193 3.682 3.269 2.930 2.650 000 11 12 13 14 15 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 5.988 5.453 5.029 4.656 4.327 3.776 3.335 2.978 2.683 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 6.194 5.660 5.197 4.793 4.439 3.851 3.387 3.013 2.708 12.134 11.348 10.635 9.986 9.394 8.534 8.358 7.904 7.487 7.103 6.424 5.842 5.342 4.910 4.533 3.912 3.427 3.040 2.727 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.628 6.002 5.468 5.008 4.611 3.962 3.459 3.061 2.740 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.060 7.606 6.811 6.142 5.575 5.092 4.675 4.001 3.483 3.076 2.750 16 14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.312 7.824 6.974 6.265 5.669 5.162 4.730 4.003 3.503 3.088 2.758 17 15.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.002 7.120 6.373 5.749 5.222 4.775 4.059 3.518 3.097 2.763 18 16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.2017.250 6.467 5.818 5.273 4.812 4.080 3.529 3.104 2.767 19 17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.366 6.550 5.877 5.316 4.844 4.097 3.539 3.109 2.770 20 18.046 16.351 14.877 13.590 12.462 11.470 10.594 9.818 9.128 8.514 7.469 6.623 5.929 5.353 4.870 4.110 3.546 3.113 2.772 25 22.023 19.523 17.413 15.622 14.094 12.783 11.654 10.675 9.823 9.077 7.843 6.873 6.097 5.467 4.948 4.147 3.564 3.122 2.776 30 25.808 22.937 19.600 17.292 15.373 13.765 12.409 11.258 10.274 9.427 8.055 7.003 6.177 5.517 4.979 4.160 3.569 3.124 2.778