P1.1. (2.5 points) A 7% annual coupon 10-year convertible bond has a par value o
ID: 2655270 • Letter: P
Question
P1.1. (2.5 points) A 7% annual coupon 10-year convertible bond has a par value of $1,000. Comparable bonds yield 8.5%. The current price of the issuing company's stock is $19 and the conversion ratio is 50 shares. Valued as a bond, what price would you expect to pay for this convertible bond? Convertible Bond Price (Valued As a Bond) P1.2. (2.5points) If the bond in the previous question (P1) were valued as stock, then what is the convertible bond worth? Convertible Bond Price (Valued As Stock) P2. (5 points) A coupon bond pays annual interest of $40, has a par value of $1,000, reaches maturity in 10 years, and trades for S875.50 today. What is the yield to maturity on this bond? Yield to Maturity P3. (5 points) A callable bond pays annual interest of $40, has a par value of $1,000, matures in 10 years but is callable in 5 years at a price of $1,100, and has a value today of $1025.50. What is the yield to call on this bond? Yield to Call P4. (5 points) A coupon bond which pays interest semiannually, has a par value of $1,000, matures in 5 years and has a yield to maturity of 9%. If the coupon rate is 13%, then what should the price of the bond be? Bond PriceExplanation / Answer
P1.1. Convertible bond price = 70 x PVAF(8.5%, 10years) + 1,000 x PVF(8.5%, 10years) = (70 x 6.561) + (1,000 x 0.442) = $901.58
P1.2. Convertible bond price = 70 x PVAF(8.5%, 10years) + 19 x 50 x PVF(8.5%, 10years) = (70 x 6.561) + (950 x 0.442) = $879.47
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