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1) Given the following information concerning a convertible bond: Principal $1000 Coupon 5% Maturity 15 yrs Call Price $1,050 Conversion price $37 (i....

1) Given the following information concerning a convertible bond:
Principal $1000
Coupon 5%
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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Top Answer

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8549520.xlsx

Face value
Maturity
Coupon
Call price
Conversion price
Market price of stock
Bond price
D)
E)
F) Premium
YTM
Price
Premium 1000
15
5%
1050
37 27 shares
32
1040
38.52-32
7%
$817.84
$222.16 6.52

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