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?

Homework Answers

Answer #1
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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