Maple Aircraft has issued a 4¾% convertible subordinated debenture due 3 years from now. The conversion price is $47 and the debenture is callable at 102.75% of face value. The market price of the convertible is 91% of face value, and the price of the common is $41.50. Assume that the value of the bond in the absence of a conversion feature is about 65% of face value. 4. At what stock price is the conversion value equal to the bond value? 5. Can the market price be less than the conversion value? 6. How much is the convertible holder paying for the option to buy one share of common stock?

Maple Aircraft has issued a 4¾% convertible subordinated debenture due 3 years from now. The conversion price is $47 and the debenture is callable at 102.75% of face value. The market price of the convertible is 91% of face value, and the price of the common is $41.50. Assume that the value of the bond in the absence of a conversion feature is about 65% of face value. 4. At what stock price is the conversion value equal to the bond value? 5. Can the market price be less than the conversion value? 6. How much is the convertible holder paying for the option to buy one share of common stock?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section: Chapter Questions

Problem 14P

See similar textbooks

Similar questions

Maple Aircraft has issued a 4¾% convertible subordinated debenture due 3 years from now. The conversion price is $47 and the debenture is callable at 102.75% of face value. The market price of the convertible is 91% of face value, and the price of the common is $41.50. Assume that the value of the bond in the absence of a conversion feature is about 65% of face value. 7. By how much does the common have to rise after three years to justify conversion? This is the third part of my first submitted questions. please explain in full detail. Thank you.
Maple Aircraft has issued a 4¾% convertible subordinated debenture due 3 years from now. The conversion price is $47 and the debenture is callable at 102.75% of face value. The market price of the convertible is 91% of face value, and the price of the common is $41.50. Assume that the value of the bond in the absence of a conversion feature is about 65% of face value. 6. Can the market price be less than the conversion value? 7. How much is the convertible holder paying for the option to buy one share of common stock? 8. By how much does the common have to rise after three years to justify conversion? please explain in full detail. Thank you.
A company has a convertible bond outstanding with a conversion price of $50 and maturity in 10 years. The company's share price is $24.25. This convertible bond is comparable to a 10-year coupon bond traded in the market with face value of $1,000, annual coupon rate of 9%, and required return of 12%. What is the floor value of this convertible bond? O $2,575 O $830.49 O $928.34 O $24.25 O $485
Maple Aircraft has issued a 4¾% convertible subordinated debenture due 3 years from now. The conversion price is $47 and the debenture is callable at 102.75% of face value. The market price of the convertible is 91% of face value, and the price of the common is $41.50. Assume that the value of the bond in the absence of a conversion feature is about 65% of face value. In the absence of the conversion feature, what is the current yield and yield to maturity? What is the conversion ratio of the debenture? If the conversion ratio were 50, what would be the conversion price? What is the conversion value? At what stock price is the conversion value equal to the bond value? Can the market price be less than the conversion value? How much is the convertible holder paying for the option to buy one share of common stock? . By how much does the common have to rise after three years to justify conversion? please explain in full detail.Thank you.
A certain convertible bond has a conversion ratio of 30 and a conversion premium of 15%. The current market price of the underlying common stock is $30. What is the bond's conversion equivalent?SaThe bond's conversion equivalent is $(Round to the nearest cent.)
Breuer Investment's convertible bonds have a $1,000 par value and a conversion price of $45 a share. What is the convertible issue's conversion ratio? Round your answer to two decimal places.
Whiston Securities recently issued convertible bonds with a $1,000 parvalue. The bonds have a conversion price of $20 per share. What is the bonds’ conversionratio, CR?
The following data apply to Saunders Corporation's convertible bonds: Maturity: 10 Stock Price: $30.00 Par value: $1,000.00 Conversion price: $35.00 Annual coupon: 5.00% Straight-debt yield: 8.00% What is the bond's straight-debt value? Based on your answers to the three preceding questions, what is the minimum price (or "floor" price) at which the Saunders' bonds should sell? Please solve the problem by using algebra and formulas instead of excel.
A convertible bond is selling for $800. It has 10 years to maturity, a $1000 face value, and a 10% coupon paid semi-annually. The conversion price, specified at the time the convertible bond is issued, is $50 per share [in other words, if one bond is converted, the number of shares obtained in return equals the face value of the bond divided by this conversion price]. Non-convertible bonds issued by the same firm with the same face value, term to maturity and coupon are priced to yield an effective semi-annual return of 7.2%. The stock currently sells for $31.375 per share. a) What is the value of the convertible bond considered as a straight bond? b) If the bond is converted to shares, how many shares are equivalent to the convertible bond given its face value? What is the value of that share portfolio?
A convertible bond is selling for $800. It has 10 years to maturity, a $1000 face value, and a 10% coupon paid semi-annually. The conversion price, specified at the time the convertible bond is issued, is $50 per share [in other words, if one bond is converted, the number of shares obtained in return equals the face value of the bond divided by this conversion price]. Non-convertible bonds issued by the same firm with the same face value, term to maturity and coupon are priced to yield an effective semi-annual return of 7.2%. The stock currently sells for $31.375 per share. a) What is the value of the convertible bond considered as a straight bond? b) If the bond is converted to shares, how many shares are equivalent to the convertible bond given its face value? What is the value of that share portfolio? c) Calculate the convertible bond’s option value.
A company whose stock trades at $ 100 can issue 10% coupon paying senior bonds for a maturity of two year. Alternatively, they can issue convertibles at 5% coupon with $ 1000 face value with a conversion ratio of 8. If the option value constitutes one fourth of the price of the convertible, what is the convertible bonds price? a. $ 1,217.63 p. $ 1,233.67 c. $ 844.43 d. $ 833.13
D3) Assume that Almond Milk Company has a $1,000 face value bond with a stated coupon rate of 8.01 percent that is convertible into its common stock at $35.13. The bond is selling at $1,066.89 in the market. The common stock is selling for $33.73 and pays a dividend of 0.81 per share. Calculate the payback premium period. Please calculate the final answer to two decimal places. Your Answer: