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# Convertible Bonds

### What is the convertible bond's conversion premium?

A \$1000 par value convertible bond has a conversion price of \$50. It is currently selling for \$1120 despite the fact that the bond's coupon rate and the market rate are equal. The common stock obtained upon conversion is selling for \$54 per share. What is the convertible bond's conversion premium?

### Ghostbusters Corporation issues \$300,000 of 9% bonds

Dear OTA, Please help me with steps Thanks 1) Ghostbusters Corporation issues \$300,000 of 9% bonds, due in 10 years, with interest payable semiannually. At the time of issue, the market rate for such bonds is 10%. Computer the issue price of the bonds. 2) Toy Story Corporation issued \$500,000 of 6% bonds on May 1

### Bonds

Your company has a tax rate of 35%. The interest on long term bonds is 10%. What is the after tax cost of this component of your capital structure?

### What is the bond's conversion ratio? What is the bond's conversion value? What is the bond's straight-debt value?

The following data apply to Saunders Corporation's convertible bonds: Maturity 10 Stock Price \$30.00 Par Value \$1,000 Conversion Price \$35.00 Annual Coupon 5% Straight-Debt Yield 8% 1) What is the bond's conversion ratio? A. 27.14 B. 28.57 C. 30.00 D. 31.50 E. 33.08 2) What is the bond's conversion value

### Convertible Debt

Question: A lot of small dot.com companies got financing in the form of convertible debt. I know this is like ordinary debt, but it pays a regular interest and the debtholders have the right to convert it to equity. Why would companies chose this instrument?

### Paid in Capital

ABC Corporation had two issues of securities outstanding: common stock and an 8% convertible bond issue in the face amount of \$16,000,000. Interest payment dates of the bond issue are June 30th and December 31st. The conversion clause in the bond indenture entitles the bondholders to receive forty shares of \$20 par value common

### What should be reported as a result of the conversion of convertible bonds?

ABC Corp has \$2,500,000 of 8% convertible bonds outstanding. Each \$1,000 bond is convertible into 30 shares of \$30 par value common stock. The bonds pay interest on January 31 and July 31. On July 31, 2007, the holders of \$800,000 bonds exercised the conversion privilege. On that date the market price of the bonds was 105 and th

### Figuring info related to bonds 215

Fifteen years ago, Roop Industries sold \$400 million of convertible bonds. The bonds had a 40-year maturity, a 5.75% coupon rate, and paid interest annually. They were sold at their \$1,000 par value. The conversion price was set at \$62.75; the common stock price was \$55 per share. The bonds were subordinated debentures, and

### Convertible bonds and stock warrants

For each of the unrelated transactions described below, present the entry(ies) required to record the bond transactions. 1) On August 1, 2007, Ryan Corporation called its 10% convertible bonds for conversion. The \$8,000,000 par bonds were converted into 320,000 shares of \$20 par common stock. On August 1, there was \$700,0

### Journal Entries for Recording Convertible Bond Interest Amortization and Conversion

Dahl Co. issued \$5,000,000 of 12% , 5 year convertible bonds on December 1, 2006 for \$5,020,800 plus accrued interest. The bonds were dated April 1, 2006 with interest payable April 1 and October 1. Bond premium is amortized each interest period on a straight line basis. Dahl Co. has a fiscal year end of September 30.. On

### Convertible Bond and Convertible Preferred Stock

1) Given the following information concerning a convertible bond: Principal \$1000 Coupon 5% Maturity 15 yrs Call Price \$1,050 Conversion price

### Problems on convertible bonds and warrants

12) Laser Electronics Company has \$30 million in 8 percent convertible bonds outstanding. The conversion ratio is 50; the stock price is \$17; and the bond matures in 15 years. The bonds are currently selling at a conversion premium of \$60 over their conversion value. If the price of the common stock rises to \$23 on this date ne

### Hannon's Convertible Bonds

Hannon Home Products, Inc., recently issued \$430,000 worth of 8 percent convertible debentures. Each convertible bond has a face value of \$1,000. Each convertible bond can be converted into 28 shares of the firm's common stock anytime before maturity. The current price of Hannon's common stock is \$31.25 per share, and the market

### Convertible bond , Price appreciation with a warrant

1)  Laser Electronics Company has \$30 million in 8 percent convertible bonds outstanding. The conversion ratio is 50; the stock price is \$17; and the bond matures in 15 years. The bonds are currently selling at a conversion premium of \$60 over their conversion value. If the price of the common stock rises to \$23 on this date n

### Bond Features

What purpose does the variety in bond features (types and characteristics) serve?

### Basic and Diluted EPS

The following data relates to Abel, Inc. for the year ended December 31, 2003: Net income (30% income tax rate) \$3,000,000 Common shares outstanding January 1, 2003 1,000,000 shares Common stock issued June 1, 2003 for cash 250,000 shares Common stock split on July 15, 2003 at rate of 2 shares for 1 10% convertibl

### Suresh Singh, CFA, is analyzing a convertible bond. The characteristics of the bond and

Suresh Singh, CFA, is analyzing a convertible bond. The characteristics of the bond and the underlying common stock are given in the following exhibit: Convertible Bond Characteristics Par value \$1,000 Annual coupon rate (annual pay) 6.5% Conversion ratio 22 Market price 105% of par value Straight value 99% of par value

### Multiple Choice Questions:

25.The floor value for a convertible bond is: A.the conversion value B.the conversion price C.The strike price D.the pure bond value 26.The bonds of Goniff Bank & Trust have a conversion premium of \$90. Their conversion price is \$20. The common stock price is \$16.50. What is the price of the convertible bonds?

### Florida Enterprises is considering issuing a 10-year convertible bond that will be priced at its \$1,000 par value. The bonds have an 8.0 percent annual coupon rate, and each bond can be converted into 20 shares of common stock. The stock currently sells at \$40 a share, has an expected dividend in the coming year of \$5, and has an expected constant growth rate of 5.0 percent. What is the estimated floor price of the convertible at the end of Year 3 if the required rate of return on a similar straight-debt issue is 10.0 percent?

Florida Enterprises is considering issuing a 10-year convertible bond that will be priced at its \$1,000 par value. The bonds have an 8.0 percent annual coupon rate, and each bond can be converted into 20 shares of common stock. The stock currently sells at \$40 a share, has an expected dividend in the coming year of \$5, and has

### 5. DNA Labs, Inc. has a \$1,000 convertible bond outstanding that can be converted into 40 shares of common stock. The common stock is currently selling for \$26.75 a share and the convertible bond is selling for \$1,118.50.

5. DNA Labs, Inc. has a \$1,000 convertible bond outstanding that can be converted into 40 shares of common stock. The common stock is currently selling for \$26.75 a share and the convertible bond is selling for \$1,118.50. a. What is the conversion value of the bond? b. What is the conversion premium? c. What is the conversi

### Capital Decisions: Equity, Convertible Bonds, Warrants

The Howland Carpet Company has grown rapidly during the past 5 years. Recently, its commercial bank urged the company to consider increasing its permanent financing. Its bank loan under a line of credit has risen to \$250,000, carrying an 8 percent interest rate. Howland has been 30 to 60 days late in paying trade creditors. D

### Calculating Conversion Ratio for Convertible Issues

Peterson Securities recently issued convertible bonds with a \$1000 par value. The bonds have a conversion price of \$40 a share. What is the convertible issue's conversion ratio?

### Standard Olive: Convertible Bond Calculations

Standard Olive Co. has a convertible bond outstanding with a coupon rate of 9 percent and a maturity date of 15 years. Comparable nonconvertible bonds of the same risk class carry a 10 percent return. The conversion ratio is 25. Presently the common stock is selling for \$30 per share. a. What is the current price of the b

### Convertible security, wheat futures contracts

1. The following facts apply to a convertible security: Conversion price \$25/share Coupon rate 6% Par value \$1,000 Yield on nonconvertible debenture of same quality 10% Market value of straight bond of same quality with coupon rate of 10% \$950 Stock price \$24/share a. What is the minimum price at which the convertible sh

### 16:22. (EPS with Convertible Bonds, Various Situations)

22. (EPS with Convertible Bonds, Various Situations) In 2003 Bonaparte Enterprises issued, at par, 60 \$1,000, 8% bonds, each convertible into 100 shares of common stock. Bonaparte had revenues of \$17,500 and expenses other than interest and taxes of \$8,400 for 2004. (Assume that the tax rate is 40%.) Throughout 2004, 2,000 shar

### Bearing and Non-Interest Bearing Bonds

1. Why would a company issue bonds that require interest payments if bonds that do not require interest payments are being sold in an open market?

### Fernandez Guitars: Computer Conversion

Fernandez Guitars, has a convertible bond quoted on the NYSE bond market at 85. (Bond quotes represent percentage of par value. Thus, 70 represents \$700, 80 represents \$800, and so on.) The bond matures in 15 years and carries a coupon rate of 6½ percent. The conversion price is 20, and the common stock is currently selling for

### If the KIC bonds are non-callable, what is the price of the bonds?

KIC, Inc., plans to issue \$5 million of perpetual bonds. The face value of each bond is \$1,000. The annual coupon on the bonds is 12 percent. Market interest rates on one-year bonds are 11 percent. With equal probability, the long-term market interest rate will be either 14 percent or 7 percent next year. Assume investors are ri

### Convertible Bond: Will the Holder Convert or Wait?

A firm currently has outstanding a 9 percent, \$1,000 convertible bond. The bond is convertible into 100 shares of common stock at a conversion price of \$10 per share and callable at \$1,090. The current market price of the firm's stock is \$12 per share. The bond holder will most likely: Allow the call to be exercised realizin