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Given the following information concerning a convertible bond:

. Coupon: 6 percent ($60 per $1,000 bond)

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Exercise price: $24

Maturity date: 20 years

. Call price: $1,050

Price of the common stock: $30

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.

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b. How many shares can the bond be converted into? Round down your answer to the nearest whole number.

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d. What is the current minimum price that the bond will command? Round your answer to the nearest dollar.

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.

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 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.

Problem 15-02 Given the following information concerning a convertible bond: Coupon: 6 percent ($60 per $1,000 bond) Exercise price: $24 Maturity date: 20 years Call price: $1,050 Price of the common stock: $30 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. $ b. How many shares can the bond be converted into? Round down your answer to the nearest whole number. 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. $ 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- 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 28% 24% 16% 20% 15% 14% 10% 9% 8% 7% 6% 5% 292 19 Time Period (e.g- year) 1 2 3 4 5 943 990 980 971 961 951 980 961 942 924 906 3% 971 943 915 .889 .863 4% 962 925 .889 .855 -822 952 907 .864 .823 .784 .890 .840 935 .873 .816 .763 .713 .926 .857 1794 .735 .681 917 .842 .772 .708 .650 .909 .826 .751 .683 .621 12% .893 797 .712 .636 .567 .877 .769 .675 .592 .519 .870 .756 .658 .572 .497 .862 1743 .641 .552 476 18% .847 718 .609 .516 437 .833 .694 579 482 402 .806 .650 524 423 .341 781 .610 477 .373 .291 .792 .747 0 6 7 8 942 933 923 914 905 .888 .871 .853 .837 .820 .838 .813 .789 .766 .744 .790 .760 .731 .703 .676 .746 .711 .677 .645 .614 .705 .665 .627 .592 .558 .666 .623 .582 .544 .508 .630 .583 .540 .500 .463 -596 547 .502 460 .422 .564 .513 .467 .424 .386 507 452 404 .361 .322 .456 .400 351 308 .270 .432 .376 .327 .284 .247 410 .354 .305 .263 .227 370 314 .266 .226 191 335 .279 .233 .194 .162 1275 .222 .179 .144 .116 .227 .178 .139 . 108 .085 10 11 12 13 14 15 .896 .887 879 .870 861 .804 .788 .773 758 .743 .722 .701 .681 .661 .642 .650 .625 .601 .577 555 585 .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 .162 .135 .168 137 112 .145 .116 .093 125 .099 .078 .108 .084 065 .094 .076 2061 049 .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 .080 .069 060 .051 .071 .060 051 .043 037 .054 .045 .038 031 026 032 026 021 .017 .014 .019 015 012 .009 .007 25 1780 .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 2015 012 .007 .004 2002 001 Interest Factors for the Present Value of an Annuity of One Dollar Time Period leg 15 2% 39 S% 6% 7% 8% 9% 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 2 1970 1942 1913 1.886 1.859 1.8331.808 1.783 1.759 1.736 1.690 1.647 1.605 1.566 1.528 1.457 1.392 1.332 1.276 3 2.9412.884 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 1.674 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 5 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 8 16ooo 7 8 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 7325 7020 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 7108 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 7024 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 12 3 14 15 10368 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 7904 7.487 7.103 6.424 5.842 5.342 4.910 4533 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 4.6113.962 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 18 19 20 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 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 16.398 14.992 13.754 12.659 11690 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 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. 4.0973.539 3.109 2.770 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 Problem 15-02 Given the following information concerning a convertible bond: Coupon: 6 percent ($60 per $1,000 bond) Exercise price: $24 Maturity date: 20 years Call price: $1,050 Price of the common stock: $30 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. $ b. How many shares can the bond be converted into? Round down your answer to the nearest whole number. 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. $ 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- 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 28% 24% 16% 20% 15% 14% 10% 9% 8% 7% 6% 5% 292 19 Time Period (e.g- year) 1 2 3 4 5 943 990 980 971 961 951 980 961 942 924 906 3% 971 943 915 .889 .863 4% 962 925 .889 .855 -822 952 907 .864 .823 .784 .890 .840 935 .873 .816 .763 .713 .926 .857 1794 .735 .681 917 .842 .772 .708 .650 .909 .826 .751 .683 .621 12% .893 797 .712 .636 .567 .877 .769 .675 .592 .519 .870 .756 .658 .572 .497 .862 1743 .641 .552 476 18% .847 718 .609 .516 437 .833 .694 579 482 402 .806 .650 524 423 .341 781 .610 477 .373 .291 .792 .747 0 6 7 8 942 933 923 914 905 .888 .871 .853 .837 .820 .838 .813 .789 .766 .744 .790 .760 .731 .703 .676 .746 .711 .677 .645 .614 .705 .665 .627 .592 .558 .666 .623 .582 .544 .508 .630 .583 .540 .500 .463 -596 547 .502 460 .422 .564 .513 .467 .424 .386 507 452 404 .361 .322 .456 .400 351 308 .270 .432 .376 .327 .284 .247 410 .354 .305 .263 .227 370 314 .266 .226 191 335 .279 .233 .194 .162 1275 .222 .179 .144 .116 .227 .178 .139 . 108 .085 10 11 12 13 14 15 .896 .887 879 .870 861 .804 .788 .773 758 .743 .722 .701 .681 .661 .642 .650 .625 .601 .577 555 585 .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 .162 .135 .168 137 112 .145 .116 .093 125 .099 .078 .108 .084 065 .094 .076 2061 049 .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 .080 .069 060 .051 .071 .060 051 .043 037 .054 .045 .038 031 026 032 026 021 .017 .014 .019 015 012 .009 .007 25 1780 .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 2015 012 .007 .004 2002 001 Interest Factors for the Present Value of an Annuity of One Dollar Time Period leg 15 2% 39 S% 6% 7% 8% 9% 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 2 1970 1942 1913 1.886 1.859 1.8331.808 1.783 1.759 1.736 1.690 1.647 1.605 1.566 1.528 1.457 1.392 1.332 1.276 3 2.9412.884 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 1.674 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 5 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 8 16ooo 7 8 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 7325 7020 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 7108 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 7024 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 12 3 14 15 10368 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 7904 7.487 7.103 6.424 5.842 5.342 4.910 4533 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 4.6113.962 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 18 19 20 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 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 16.398 14.992 13.754 12.659 11690 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 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. 4.0973.539 3.109 2.770 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