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Chapter 24

TCDN NC

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126 views3 pages

Chapter 24

TCDN NC

Uploaded by

Thanh Dung
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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BÀI TẬP CHAPTER 24

Họ và tên MSSV % Đóng góp

Tạ Thị Thanh Dung 31221025211 100%

Phạm Hữu Khánh Huyền 31221025133 100%

Nguyễn Lâm Huyền Trân 31221026171 100%

Nguyễn Xuân Khánh 31221022180 100%

Nguyễn Lê Mai Khanh 31221026503 100%

N1 - Mai Khanh

1. Conversion Price A convertible bond with a par value of $1,000 has a conversion
ratio of 16.4. What is the conversion price?

Conversion price = $1,000/16,4 = $60,98

8. Convertible Bonds You own a callable, convertible bond with a conversion ratio of

23.17. The stock is currently selling for $54 per share. The issuer of the bond has

announced a call at a call price of 110. What are your options here? What should

you do?

You can convert or tender the bond (i.e., surrender the bond in exchange for the call
price). If you convert, you get stock worth 23,17 x $54 = $1,251.18. Given that the
value from conversion ($1,251.18) exceeds the call price $1,100, (110 percent of par),
it is advisable to convert the bond into stock. This option gives you a higher value and
allows you to participate in any future upside of the stock price.

N2 - Xuân Khánh
2. Conversion Ratio A convertible bond with a par value of $1,000 has a conversion
price of $42.18. What is the conversion ratio of the bond?

-The par value of the bond is $1,000.


-The conversion ratio is $42.18.
→ Conversion Price =1000 / 42.18 ⇒ The conversion price is $23.71
N3 - Huyền Trân

3. Conversion Premium Eckely, Inc., recently issued bonds with a conversion ratio
of 13.8. If the stock price at the time of the bond issue was $49.12, what was the
conversion premium?

Conversion value = Conversion ratio x Stock price = 13.8 x 49.12 = $677.856

The bond value is not provided in the problem, but the conversion premium is the
difference between the bond value and the conversion value.

The bonds at a par value of $1000

→ Conversion premium = (𝐵𝑜𝑛𝑑 𝑣𝑎𝑙𝑢𝑒 − 𝐶𝑜𝑛𝑣𝑒𝑟𝑠𝑖𝑜𝑛 𝑣𝑎𝑙𝑢𝑒 ) / 𝐶𝑜𝑛𝑣𝑒𝑟𝑠𝑖𝑜𝑛 𝑣𝑎𝑙𝑢𝑒*100

= 47,52%

N4 - Thanh Dung

4. Convertible Bonds Denise Home Products, Inc., recently issued $2 million worth

of 3 percent convertible debentures. Each convertible bond has a face value of

$1,000. Each convertible bond can be converted into 21.5 shares of common stock

anytime before maturity. The stock price is $32.15 and the market value of each

bond is $980.

a. What is the conversion ratio? 21.5

b. What is the conversion price?

conversion price = Face Value / Conversion ratio = $46.51

c. What is the conversion premium?

= (Conversion price - Stock price) / Stock price*100 = 44.67%

d. What is the conversion value?

= Conversion ratio × Stock price = 21.5 × 32.15 = $691.225

e. If the stock price increases by $2, what is the new conversion value?
New stock price = 32.15 + 2 = $34.15

New conversion value = Conversion ratio x New stock price = $734.225

N5 - Khánh Huyền

7. Convertible Bond Value Muscles Fitness Center, Inc., issued convertible bonds
with a conversion price of $75. The bonds are available for immediate conversion.
The current price of the company’s common stock is $67 per share. The current
market price of the convertible bonds is $975. The convertible bonds’ straight value is
unknown.

a. What is the minimum price for the convertible bonds?

The conversion ratio can be determined using the conversion price, which is given as
$75 per share:

- Conversion Ratio = = = 13.33 Shares 𝑃𝑎𝑟 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐵𝑜𝑛𝑑 𝐶𝑜𝑛𝑣𝑒𝑟𝑠𝑖𝑜𝑛 𝑃𝑟𝑖𝑐𝑒


1000 75 The conversion value using the current stock price of $67:
- Conversion Value = 13.33 × 67 = 893.11 The minimum price for the
convertible bonds is $893.11, as this is the value the bondholders would receive
if they immediately converted their bonds into common stock.

b. Explain the difference between the current market price of each convertible bond

and the value of the common stock into which it can be immediately converted.

- Current market price of the bond: $975


- Conversion value (based on common stock price): $893.11

→ The Spread is : $975 − $893.11 = $81.89

→ Premium → Low risk ( compared with directly holding the stock)

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