Description
THIS PROBLEM DEALS WITH SHARE & BOND VALUATION
1.
Given the information below, answer the following questions.
A convertible bond has the following features:
Principal Maturity date Interest Call price Exercise price
a. b.
Rs1,000 20 years Rs80 (8% coupon) paid yearly Rs1,050 Rs65 a share
The bond may be converted into how many shares? If comparable non-convertible debt offered an annual yield of 12 percent, what would be the value of this bond as debt?
c. If the stock were selling for Rs52, what is the value of the bond in terms of stock? d. Would you expect the bond to sell for its value as debt (i.e., the value determined in
b) if the price of the stock were Rs52?
e. If the price of the bond were Rs960, what are the premiums paid over the bond's
value as stock and its value as debt?
f. If the price of the stock were Rs35, what would be the minimum price of the bond? g. What is the probability that the bond will be called when the price of the stock is Rs52? h. If the price of the stock rose to Rs73, what would happen to the price of the bond? i.
If the price of the stock were Rs73, what would the investor receive if the bond were called?
doc_185834562.doc
THIS PROBLEM DEALS WITH SHARE & BOND VALUATION
1.
Given the information below, answer the following questions.
A convertible bond has the following features:
Principal Maturity date Interest Call price Exercise price
a. b.
Rs1,000 20 years Rs80 (8% coupon) paid yearly Rs1,050 Rs65 a share
The bond may be converted into how many shares? If comparable non-convertible debt offered an annual yield of 12 percent, what would be the value of this bond as debt?
c. If the stock were selling for Rs52, what is the value of the bond in terms of stock? d. Would you expect the bond to sell for its value as debt (i.e., the value determined in
b) if the price of the stock were Rs52?
e. If the price of the bond were Rs960, what are the premiums paid over the bond's
value as stock and its value as debt?
f. If the price of the stock were Rs35, what would be the minimum price of the bond? g. What is the probability that the bond will be called when the price of the stock is Rs52? h. If the price of the stock rose to Rs73, what would happen to the price of the bond? i.
If the price of the stock were Rs73, what would the investor receive if the bond were called?
doc_185834562.doc