APPENDIX B:
APPENDIX D:
Given the following information concerning a convertible bond: Principal: $1,000 Coupon: 5 percent Maturity: 13 years Call price: $1,060 Conversion price: $38 (that is, 26 shares) Market price of the common stock: $32 Market price of the bond: $1,025 a. What is the current yield of this bond? Round your answer to two decimal places. % b. What is the value of the bond based on the market price of the common stock? Use the given above number of shares into which the bond may be converted. Round your answer to the nearest dollar. $ c. What is the value of the common stock based on the market price of the bond? Use the given above number of shares into which the bond may be converted. Round your answer to the nearest cent. $ d. What is the premium in terms of stock that the investor pays when he or she purchases the convertible bond instead of the stock? Round your answer to the nearest dollar. e. Nonconvertible bonds are selling with a yield to maturity of 8 percent. If this bond lacked the conversion feature, what would the approximate price of the bond be? Assume that the bond pays interest annually. Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar. $ f. What is the premium in terms of debt that the investor pays when he or she purchases the convertible bond instead of a nonconvertible bond? Round your answer to the nearest dollar. $ g. What is the probability that the corporation will call this bond? Since the price of the stock is -Select- v than the exercise price of the bond, the probability of the bond being called is -Select- 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% 917 .909 .842 .826 .772 .751 .708 .683 .650 .621 12% 14% .893 .877 870 .797 .769 .756 .712 .675 .658 .636 592 .572 567 519 497 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 1% 2% 8% 9% Time Period (e.g., year) 1 2 3 4 5 3% 4% 5% 6% 7% 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 un 6 7 8 9 10 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 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 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 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 11 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 12 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 13 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 14 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 15 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: Principal: $1,000 Coupon: 5 percent Maturity: 13 years Call price: $1,060 Conversion price: $38 (that is, 26 shares) Market price of the common stock: $32 Market price of the bond: $1,025 a. What is the current yield of this bond? Round your answer to two decimal places. % b. What is the value of the bond based on the market price of the common stock? Use the given above number of shares into which the bond may be converted. Round your answer to the nearest dollar. $ c. What is the value of the common stock based on the market price of the bond? Use the given above number of shares into which the bond may be converted. Round your answer to the nearest cent. $ d. What is the premium in terms of stock that the investor pays when he or she purchases the convertible bond instead of the stock? Round your answer to the nearest dollar. e. Nonconvertible bonds are selling with a yield to maturity of 8 percent. If this bond lacked the conversion feature, what would the approximate price of the bond be? Assume that the bond pays interest annually. Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar. $ f. What is the premium in terms of debt that the investor pays when he or she purchases the convertible bond instead of a nonconvertible bond? Round your answer to the nearest dollar. $ g. What is the probability that the corporation will call this bond? Since the price of the stock is -Select- v than the exercise price of the bond, the probability of the bond being called is -Select- 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% 917 .909 .842 .826 .772 .751 .708 .683 .650 .621 12% 14% .893 .877 870 .797 .769 .756 .712 .675 .658 .636 592 .572 567 519 497 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 1% 2% 8% 9% Time Period (e.g., year) 1 2 3 4 5 3% 4% 5% 6% 7% 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 un 6 7 8 9 10 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 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 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 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 11 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 12 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 13 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 14 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 15 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
