Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 24, Problem 10QP
Convertible Bonds [LO6] The following facts apply to a convertible bond making semiannual payments:
| Conversion price | $38/share |
| Coupon rate | 2.6% |
| Par value | $1,000 |
| Yield on nonconvertible debentures of same quality | 5% |
| Maturity | 30 years |
| Market price of stock | $34/share |
a. What is the minimum price at which the convertible should sell?
b. What accounts for the premium of the market price of a convertible bond over the total market value of the common stock into which it can be converted?
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Given the following information concerning a convertible bond:
Coupon: 6 percent ($60 per $1,000 bond)
Exercise Price: $25
Maturity date: 20 years
Call Price: $1040
Price of the common stock: $30
D. What is the current minimum price that the bond will command?
E. Is there any reason to anticipate that the firm will call the bond?
F. What do investors receive if they do not convert the bond when it is called?
G. If the bond were called, would it be advantageous to convert?
Please dont answer in excel i do not understand that yet, only equations or worded answers please
The prices of zero-coupon bonds with various maturities are given:
maturity in years
price
1
975.66
2
885.89
3
821.92
4
759.20
5
670.20
A) How could you construct a 1-year forward loan beginning in year 3?
face value = ?
rate of synthetic loan = ?
B) How could you construct a 1-year forward loan beginning in year 4?
face value = ?
rate of synthetic loan = ?
D6
Assume you own a 2-year US Treasury Note with a 5% coupon and a 7-year
US Treasury Note with a 0% coupon. If market interest rates decrease by
100 basis points in the 2-year maturity and declined by only 75 basis points in the
7-year maturity, which bond would experience the smallest
market value change?
a. 5% US Treasury due in 2 years
b. 0% US Treasury due in 7 years
c. Both would change by the same amount
d. Prices would not change since the coupons are fixed
Chapter 24 Solutions
Fundamentals of Corporate Finance
Ch. 24.1 - What is a call option? A put option?Ch. 24.1 - If you thought that a stock was going to drop...Ch. 24.2 - What is the value of a call option at expiration?Ch. 24.2 - What are the upper and lower bounds on the value...Ch. 24.2 - Prob. 24.2CCQCh. 24.3 - Prob. 24.3ACQCh. 24.3 - Prob. 24.3BCQCh. 24.3 - Prob. 24.3CCQCh. 24.4 - Prob. 24.4ACQCh. 24.4 - Prob. 24.4BCQ
Ch. 24.5 - Why do we say that the equity in a leveraged firm...Ch. 24.5 - All other things being the same, would the...Ch. 24.6 - Prob. 24.6ACQCh. 24.6 - Prob. 24.6BCQCh. 24.6 - Prob. 24.6CCQCh. 24.7 - Prob. 24.7ACQCh. 24.7 - Prob. 24.7BCQCh. 24.7 - Prob. 24.7CCQCh. 24.7 - Prob. 24.7DCQCh. 24 - Steve sold a put option when the option premium...Ch. 24 - Prob. 24.2CTFCh. 24 - Prob. 24.4CTFCh. 24 - Prob. 1CRCTCh. 24 - Prob. 2CRCTCh. 24 - Prob. 3CRCTCh. 24 - Prob. 4CRCTCh. 24 - Prob. 5CRCTCh. 24 - Options and Stock Risk [LO2] If the risk of a...Ch. 24 - Prob. 7CRCTCh. 24 - Prob. 8CRCTCh. 24 - Prob. 9CRCTCh. 24 - Prob. 10CRCTCh. 24 - Prob. 11CRCTCh. 24 - Prob. 12CRCTCh. 24 - Prob. 13CRCTCh. 24 - Prob. 14CRCTCh. 24 - Prob. 15CRCTCh. 24 - Calculating Option Values [LO2] T-bills currently...Ch. 24 - Understanding Option Quotes [LO1] Use the option...Ch. 24 - Calculating Payoffs [LO1] Use the option quote...Ch. 24 - Calculating Option Values [LO2] The price of Build...Ch. 24 - Calculating Option Values [LO2] The price of...Ch. 24 - Using the Pricing Equation [LO2] A one-year call...Ch. 24 - Equity as an Option [LO4] Rackin Pinion...Ch. 24 - Equity as an Option [LO4] Buckeye Industries has...Ch. 24 - Calculating Conversion Value [LO6] A 1,000 par...Ch. 24 - Convertible Bonds [LO6] The following facts apply...Ch. 24 - Calculating Values for Convertibles [LO6] You have...Ch. 24 - Calculating Warrant Values [LO6] A bond with 20...Ch. 24 - Prob. 13QPCh. 24 - Prob. 14QPCh. 24 - Prob. 15QPCh. 24 - Prob. 16QPCh. 24 - Intuition and Option Value [LO2] Suppose a share...Ch. 24 - Intuition and Convertibles [LO6] Which of the...Ch. 24 - Convertible Calculations [LO6] Starset, Inc., has...Ch. 24 - Abandonment Decisions [LO5] Allied Products, Inc.,...Ch. 24 - Pricing Convertibles [LO6] You have been hired to...Ch. 24 - Abandonment Decisions [LO5] Consider the following...Ch. 24 - SS Airs Convertible Bond SS Air is preparing its...Ch. 24 - Prob. 2MCh. 24 - Prob. 3MCh. 24 - Prob. 4MCh. 24 - Prob. 5M
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What happens to my bond when interest rates rise?; Author: The Financial Pipeline;https://www.youtube.com/watch?v=6uaXlI4CLOs;License: Standard Youtube License