Question

# . Dash Incorporated has the following convertible bond outstanding: Coupon 5% Principal \$1,000 Maturity 12 years...

• . Dash Incorporated has the following convertible bond outstanding:
 Coupon 5% Principal \$1,000 Maturity 12 years Conversion price \$33.34 Conversion ratio 30 shares Call price \$1,000 + one year’s interest = 1050
• The bond’s credit rating is BB, and comparable BB-rated bonds yield 9 percent. The firm’s stock is selling for \$25 and pays a dividend of \$0.50 a share. The convertible bond is selling for \$1,000
• If the bond is not converted, what does the investor receive when the bond matures? What is the annual return on the investment?

 If the bond is not converted: Fv Amount investor receives at maturity \$1,000 Pmt Annual coupon received \$50 (1000*5%) Nper Number of years to maturity 12 Pv Issue price \$1,000 RATE Annual return on the investment 5.00% (Using RATE Function of excel with Nper=12,Pmt=50, Pv=-1000, Fv=1000) Excel Command:RATE(12,50,-1000,1000) Amount received when bond matures \$1000 Annual Return 5%

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