Please help with the following problem.
A company issued $20 million of 15-year convertible bonds in October of 2003. At the time, market interest rates for straight bonds of similar quality were 6.4%. The company's convertible bonds had a coupon rate of 4% and sold for $1,120 when issued. The bond paid semi-annual interest. The bonds have a conversion ratio of 40. When the bonds were issued the company's stock price was $14.50. Today (October 22, 2009) the stock price is $32.00 per share.
A. What was the yield-to-maturity of the bonds on the day they were issued?
B. What would the bonds sell for today?
C. If an investor bought the bonds at issuance for $1,120 and sold them today (6 years later), what is the investor's annual rate of return?
Please see attached file for answers.
Current interest rate 6.40%
Maturity 15 years
Coupon rate 4% annual
Coupon payment $20 ...
Convertible bonds are examined. YTM at issue and ROR are determined. The solution is provided in an Excel spreadsheet.