Author Question: You own a $1,000 par value convertible bond with a 6% coupon rate. The bond is convertible into 20 ... (Read 109 times)

iveyjurea · **on:** Apr 14, 2019

Question 1

The advantage of a convertible bond to the investor is

◦ higher coupon interest rates.
◦ ability to "own the upside" if the company performs well.
◦ convertibility protects the investor if the stock decreases in value.
◦ none of these are advantages.

Question 2

You own a $1,000 par value convertible bond with a 6% coupon rate. The bond is convertible into 20 shares of stock at the investor's discretion. The stock price has reached $51 per share with a $1 per share annual dividend, but you do not forecast any further price appreciation in the stock. Should you make the conversion?

◦ No, 20 shares of stock are not worth $1,000.
◦ Yes, since the stock is worth $51 per share it is worth more than the bond.
◦ No, the total stock is only worth $20 more than the bond, and you would lose $40 in annual cash flow based on the coupon rate versus the dividend.
◦ Yes, while the stock is only worth $20 more in total than the bond, you will receive an annual $1 per share dividend.

peter · **Reply #1 on:** Apr 14, 2019

A FREE account is required to view all solutions!

Lorsum iprem. Lorsus sur ipci. Lorsem sur iprem. Lorsum sur ipdi, lorsem sur ipci. Lorsum sur iprium, valum sur ipci et, vala sur ipci. Lorsem sur ipci, lorsa sur iprem. Valus sur ipdi. Lorsus sur iprium nunc, valem sur iprium. Valem sur ipdi. Lorsa sur iprium. Lorsum sur iprium. Valem sur ipdi. Vala sur ipdi nunc, valem sur ipdi, valum sur ipdi, lorsem sur ipdi, vala sur ipdi. Valem sur iprem nunc, lorsa sur iprium. Valum sur ipdi et, lorsus sur ipci. Valem sur iprem. Valem sur ipci. Lorsa sur iprium. Lorsem sur ipci, valus sur iprem. Lorsem sur iprem nunc, valus sur iprium.

Answer Preview

Only 55% of students answer this correctly