6.) Convertible Bonds & W

6.) Convertible Bonds & W

6.) Convertible Bonds & Warrantsa.) Preissle Company, wants to sell some 20-year, annual interest, $1,000 par value bonds. Its stock sells for $42 per share, and each bond would have 25 warrants attached to it, each exercisable into one share of stock at an exercise price of $47. The firm?s straight bond yield 10%. Each warrant is expected to have a market value of $5.00 given that the stock sells for $42. What coupon interest rate must the company set on the bonds in order to sell the bonds-with-warrants at par?b.) The following data apply to Neuman Corporation?s convertible bonds:Maturity: 10Par value: $1,000.00Annual coupon: 5.00%Stock price: $40.00Conversion price: $50.00Straight-debt yield: 9.00%i.) What is the bond?s conversion ratio?ii.) What is the bond?s conversion value?iii.) What is the bond?s straight-debt value?iv.) Based on your answers to the three preceding questions, what is the minimum price (or ?floor? price) at which the Neuman?s bonds should sell?

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