Maurice Tutor

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Algebra,Applied Sciences,Biology,Calculus,Chemistry,Economics,English,Essay writing,Geography,Geology,Health & Medical,Physics,Science Hide all
Teaching Since: May 2017
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  • MCS,PHD
    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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  • Professor
    Phoniex University
    Oct-2001 - Nov-2016

Category > Management Posted 03 Apr 2018 My Price 8.00

Bildon Enterprises

6.    You are considering the purchase of a convertible bond issued by Bildon Enterprises, a non-investment-grade medical service firm. The issue has seven  years to maturity and  pays a semiannual coupon rate of 7.625 percent (i.e., 3.8125 percent per period). The issue is callable by the company at par and can be converted into 48.852 shares of Bildon com- mon stock. The bond currently sells for $965 (relative to par value of $1,000), and Bildon stock trades at $12.125 a share.

a.    Calculate the current conversion value for the bond. Is the conversion option embed- ded in this bond in the money or out of the money? Explain.

b.    Calculate the conversion parity price for Bildon stock that would make conversion of

the bond profitable.

c.    Bildon does not currently pay its shareholders a dividend, having suspended these dis- tributions six months ago. What is the payback (i.e., breakeven time) for this convert- ible security, and how should it be  interpreted?

d.    Calculate the convertible’s current yield to maturity. If a “straight” Bildon  fixed- income issue with the same cash flows would yield 9.25 percent, calculate the net value of the combined options (i.e., the issuer’s call and the investor’s conversion) embedded in the bond.

 

Answers

Maurice Tutor
(5)
Status NEW Posted 03 Apr 2018 08:04 PM My Price 8.00

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