Problem 15 02

Given the following information concerning a convertible bond:

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

Exercise price: $24

Maturity date: 20 years Call price: $1,050

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Price of the common stock: $30

a. If this bond were nonconvertible, what would be its approximate value it comparable interest rates were 9 percent? Assume that the bond pays interest annually. Use Appendix and Appendix to arower 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 neatest dullit:

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

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e: Is there any reason to anticipate that the firm will call the band?

The price of the stock is

the bond's exercise price. So the firm Salice force conversion by calling the bond,

1. What do investors resolve if they do not convert the band when it is called? Round your answer to the nearest dollar.

of the bond were called, would it be advantageous to convert?

the call price

Sed advantageous to convert since the bond's value as stock is select

n 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? v force conversion by calling the bond. The price of the stock is Select- the bond's exercise price. So the firm -Select- 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? the call price. It Select- v advantageous to convert since the bond's value as stock is -Select- Interest Factors for the Present Value of One Dollar Time Period leg 1% 3% 4% 5% 6% 7% 9% 10% 12% 14% 16% 18% 20% 24% year) 1 2 3 4 5 NM 990 980 971 961 951 2% 980 961 942 924 .906 971 943 915 889 863 962 925 889 .855 .822 952 907 .864 .823 784 943 .890 .840 792 747 935 1873 1816 .763 713 8% 926 .857 794 1735 .681 917 842 .772 1708 650 1909 .826 .751 683 .621 893 1797 1712 636 1567 .877 .769 .675 592 519 15% 1870 .756 .658 1572 497 .862 1743 641 1552 476 .847 718 .609 1516 437 .833 .694 579 482 402 806 .650 524 423 .341 28% .781 -610 477 373 .291 596 547 6 7 8 9 10 942 933 923 914 905 888 871 1853 .837 820 838 813 789 .766 744 .790 746 1760 711 1731 677 703 645 .676 .614 1.705 1665 1627 592 1558 1666 .623 582 544 508 .630 583 .540 .500 463 1502 460 1422 564 1513 467 424 1386 507 452 404 1361 1322 456 400 351 308 270 432 376 327 1284 .247 410 354 1305 1263 227 370 314 .266 1226 191 335 .279 .233 .194 .162 275 222 .179 144 .116 .227 .178 .139 .108 .085 11 12 12 14 15 896 2887 879 870 1861 804 788 773 758 743 1722 701 681 4661 1642 650 .625 .601 577 555 585 557 -530 505 481 .527 497 469 442 417 475 444 415 388 362 429 397 368 340 1315 1388 356 326 299 1275 1B50 319 1290 1263 .239 1287 257 229 205 1183 237 208 182 .160 1140 215 .187 163 141 .123 .195 .168 145 .125 .108 .162 137 116 .099 .084 135 112 .093 .078 .065 ,094 076 ,061 049 .040 .066 .052 .040 .032 .025 071 060 16 17 18 19 20 nQ2M6DB 853 1844 836 .828 820 728 714 1700 686 -673 1623 2605 .587 570 .554 534 :513 494 475 456 458 436 416 396 377 394 .371 350 331 312 339 217 296 1.276 258 292 270 .250 232 .215 051 .252 1.231 212 194 -178 218 198 180 164 149 1163 146 130 116 104 123 108 1.095 083 L073 107 .093 .081 070 061 093 2080 .069 060 051 054 045 .038 031 .026 032 .026 _021 .017 .014 .019 2015 012 2009 .007 043 037 005 L002 .024 059 .030 016 010 1.038 092 116 146 780 610 478 375 295 1184 233 2007 004 001 020 1015 012 2002 033 075 057 .131 1.099 30 .742 412 -552 308 231 174 Interest Factors for the Present Value of an Annuity of One Dollar Time Period le.ge year) 1 2 3 4. 5 -NM 1% 2% 3% 5% 2% 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 1.970 1.942 1913 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 1276 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 1766 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 1966 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 7 8 9 10 000 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 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 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 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 8.5598.060 7.606 6.811 6.142 5.575 5.092 4.675 4.001 3.483 3.076 2.750 16 17 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 11.690 10.828 10.059 9.372 8.756 8.201 7.250 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 4.097 3.539 3.109 2.770 18.046 16.351 14.877 13.590 12.462 11.470 10.594 .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