1) Given the following information concerning a convertible bond:
Maturity 15 yrs
Call Price $1,050
Conversion price $37 (i.e., 27 shares)
Market price of the common stock $32
Market price of the bond $1,040
a) What is the current yield of this bond?
b) What is the value of the bond based on the market price of the common stock?
c) What is the value of the common stock based on the market price of the bond?
d) What is the premium in terms of stock that the investor pays when he/she purchases the convertible bond instead of stock?
e) Nonconvertible bonds are selling with a yield to maturity of 7 %. If this bond lacked the conversion feature, what would the approximate price of the bond be?
f) What is the premium in terms of debt that the investor pays when he or she purchase convertible bond instead of a nonconvertible bond?
What I got:
a) $1,000*5%/$1,050= 4.762%
b) $32x27 shares = $864
c) $1,040/27 shares =$38.52/share
lost on the rest!
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