Pittsburgh Steel Company has a convertible bond outstanding, trading in the marketplace at $890. The par value is $1,000, the coupon rate is 8 percent,
Pittsburgh Steel Company has a convertible bond outstanding, trading in the marketplace at $890. The par value is $1,000, the coupon rate is 8 percent, and the bond matures in 15 years. The conversion price is $35 and the companys common stock is selling for $28 per share. Interest is paid semiannually. If the interest rate on similar bonds that are not convertible are currently yielding 12 percent, what will be the pure bond value of the Pittsburgh Steel Company bonds? (Use semiannual analysis.) Use Appendix B and Appendix D as an approximate answer, but calculate your final answer using the formula and financial calculator methods.
Appendix D Present value of an annuity of $1, PVIFA PVA = A 1- (1 + i)" Percent 6% 2% 3% 4% 9% 11% 12% Period 1 2 2 7% 0.935 10% 0.909 1 ................. 1% 0.990 1.970 2.941 3.902 0.980 1.942 5% 0.952 1.859 2.723 3.546 1.808 0.962 1.886 2.775 3.630 1.736 0.943 1.833 2.673 3.465 0.917 1.759 2.531 3.240 0.893 1.690 2.402 2.884 2.624 3 4 2.487 3.170 3.387 3.037 0.901 1.713 2.444 3.102 3.696 4.231 4.712 5 3.808 4.713 5.601 4.853 3.605 4.452 5.242 6 5.795 6.728 8% 0.926 1.783 2.577 3.312 3.993 4.623 5.206 5.747 6.247 6.710 7.139 7.536 7.904 4.111 4.564 7 6.002 8 5.146 0.971 1.913 2.829 3.717 4.580 5.417 6.230 7.020 7.786 8.530 9.253 9.954 10.635 11.296 11.938 12.561 9 5.537 4.968 5.328 5.650 5.938 10 11 7.652 8.566 9.471 10.368 11.255 12.134 13.004 13.865 14.718 15.562 5.889 6.207 6.492 6.750 12 6.194 13 6.424 14 8.244 6.628 6.472 7.325 8.162 8.983 9.787 10.575 11.348 12.106 12.849 13.578 14.292 14.992 15.678 16.351 19.523 22.396 27.355 31.424 4.329 5.076 5.786 6.463 7.108 7.722 8.306 8.863 9.394 9.899 10.380 10.838 11.274 11.690 12.085 12.462 14.094 15.372 17.159 18.256 4.212 4.917 5.582 6.210 6.802 7.360 7.887 8.384 8.853 9.295 9.712 10.106 10.477 10.828 11.158 11.470 12.783 13.765 15.046 15.762 6.733 7.435 8.111 8.760 9.385 9.986 10.563 11.118 11.652 12.166 12.659 13.134 13.590 15.622 17.292 19.793 21.482 4.100 4.767 5.389 5.971 6.515 7.024 7.499 7.943 8.358 8.745 9.108 9.447 9.763 10.059 10.336 10.594 11.654 12.409 13.332 13.801 3.890 4.486 5.033 5.535 5.995 6.418 6.805 7.161 7.487 7.786 8.061 8.313 8.544 8.756 8.950 9.129 9.823 10.274 10.757 10.962 15 3.791 4.355 4.868 5.335 5.759 6.145 6.495 6.814 7.103 7.367 7.606 7.824 8.022 8.201 8.365 8.514 9.077 9.427 9.779 9.915 16 17 13.166 8.559 8.851 9.122 9.372 9.604 6.811 6.974 7.120 7.250 7.366 7.469 18 19 6.982 7.191 7.379 7.549 7.702 7.839 7.963 8.422 8.694 8.951 9.042 13.754 14.324 14.877 17.413 20 16.398 17.226 18.046 22.023 25.808 32.835 39.196 9.818 25 7.843 10.675 11.258 30 40 19.600 23.115 25.730 11.925 12.233 8.055 8.244 8.304 50 Appendix D Present value of an annuity of $1, PVIFA PVA = A 1- (1 + i)" Percent 6% 2% 3% 4% 9% 11% 12% Period 1 2 2 7% 0.935 10% 0.909 1 ................. 1% 0.990 1.970 2.941 3.902 0.980 1.942 5% 0.952 1.859 2.723 3.546 1.808 0.962 1.886 2.775 3.630 1.736 0.943 1.833 2.673 3.465 0.917 1.759 2.531 3.240 0.893 1.690 2.402 2.884 2.624 3 4 2.487 3.170 3.387 3.037 0.901 1.713 2.444 3.102 3.696 4.231 4.712 5 3.808 4.713 5.601 4.853 3.605 4.452 5.242 6 5.795 6.728 8% 0.926 1.783 2.577 3.312 3.993 4.623 5.206 5.747 6.247 6.710 7.139 7.536 7.904 4.111 4.564 7 6.002 8 5.146 0.971 1.913 2.829 3.717 4.580 5.417 6.230 7.020 7.786 8.530 9.253 9.954 10.635 11.296 11.938 12.561 9 5.537 4.968 5.328 5.650 5.938 10 11 7.652 8.566 9.471 10.368 11.255 12.134 13.004 13.865 14.718 15.562 5.889 6.207 6.492 6.750 12 6.194 13 6.424 14 8.244 6.628 6.472 7.325 8.162 8.983 9.787 10.575 11.348 12.106 12.849 13.578 14.292 14.992 15.678 16.351 19.523 22.396 27.355 31.424 4.329 5.076 5.786 6.463 7.108 7.722 8.306 8.863 9.394 9.899 10.380 10.838 11.274 11.690 12.085 12.462 14.094 15.372 17.159 18.256 4.212 4.917 5.582 6.210 6.802 7.360 7.887 8.384 8.853 9.295 9.712 10.106 10.477 10.828 11.158 11.470 12.783 13.765 15.046 15.762 6.733 7.435 8.111 8.760 9.385 9.986 10.563 11.118 11.652 12.166 12.659 13.134 13.590 15.622 17.292 19.793 21.482 4.100 4.767 5.389 5.971 6.515 7.024 7.499 7.943 8.358 8.745 9.108 9.447 9.763 10.059 10.336 10.594 11.654 12.409 13.332 13.801 3.890 4.486 5.033 5.535 5.995 6.418 6.805 7.161 7.487 7.786 8.061 8.313 8.544 8.756 8.950 9.129 9.823 10.274 10.757 10.962 15 3.791 4.355 4.868 5.335 5.759 6.145 6.495 6.814 7.103 7.367 7.606 7.824 8.022 8.201 8.365 8.514 9.077 9.427 9.779 9.915 16 17 13.166 8.559 8.851 9.122 9.372 9.604 6.811 6.974 7.120 7.250 7.366 7.469 18 19 6.982 7.191 7.379 7.549 7.702 7.839 7.963 8.422 8.694 8.951 9.042 13.754 14.324 14.877 17.413 20 16.398 17.226 18.046 22.023 25.808 32.835 39.196 9.818 25 7.843 10.675 11.258 30 40 19.600 23.115 25.730 11.925 12.233 8.055 8.244 8.304 50
