Premium over straight value 00 coupon rate: 5. The higher the premium over straight value, all other factors constant, the less attractive the convertible bond. Apr 22, 2009 · If the premium over straight value is small --> the price drop to straight value is lower and hence your downside risk is lower. Find step-by-step Accounting solutions and the answer to the textbook question Consider a convertible bond as follows: * par value = $1,000 * coupon rate = 9. Multiply the bond premium by the number of bonds. (Select all that apply. What is the premium over straight value of this convertible bond? Assume the yield on a comparable non-convertible bond is 4%, and annual Oct 8, 2024 · What is the premium over straight value at which these bonds would trade? Algebra A 30-year maturity, 7% coupon bond paying coupons semiannually is callable in five years at a call price of $1,100. This method evenly spreads the bond premium over the life of the bond, affecting both the balance sheet and the income statement. The convertible bond is trading at $1,073. What is the premium over straight value for a bond if the market price of it is $200, and the straight value is $160? This excerpt comes from an article titled “Bartlett Likes Convertibles” in the October 7, 1991, issue of Bond Week, p. 71962 or about 71. 3996 This gives us the bond premium as a percentage of the par value. 70. at 1000. I think, straight value is the floor of CB, so the lower the floor, the more increase room the CB has. 383, we can insert all of our given values into our favorable income differential per share to get: Apr 14, 2021 · Market convertible bond value = market price the convertible bond is currently selling for. Dec 12, 2024 · Consider a convertible bond as follows: par value = $1,000; coupon rate = 9. 0554 or 5. 96078 - 1 = 0. The conversion value, then again, is equivalent to the conversion ratio increased by the common stock's market price. $$\textrm{Premium over straight value} = \frac{\textrm{Convertible bond price}}{\textrm{Straight value}} - 1. Estimated straight value of bond = $510. Market Price of Debenture 3900 Conversion Ratio 30 Straight Vake of Debenture 3700 Market Price of Equity share on the date of Conversion 325 Expected Dividend Per Share 31 You are required to caleutate: (a) Conversion Value of Debenture (b) Market Straight Value of Debenture Rs. 7% Assume that the price of the common stock is $23 and that the dividend per share is $0. Jul 27, 2021 · A conversion premium is expressed as a dollar amount and represents the difference between the price of the convertible and the greater of the conversion or straight bond value. 29 today. (a) Calculate each of the following (1) conversion value, (2) market conversion price, (3)conversion premium per share, (4) conversion premium ratio, (5) premium over straight value, (6) favorable income differential per share, and (7) premium payback period. 75 per year. Valuation of a Convertible Bond. The convertible bond is trading at $1,069. the theory that the interest rate on a long-term bond will equal an average of the short-term interest rates expected to occur over the life of the long-term bond, plus a positive term (liquidity) premium 12 Month spot rate>6 month Spot rate par value = $1,000 coupon rate = 9. 57 4. Nov 11, 2023 · Premium over straight value = (market price of the convertible bond/straight value) - 1 = 1000/510 - 1 = 96. 57 - 23 = 3. University of Richmond. The following formula may be used to determine this: Jan 10, 2024 · The premium over straight value is a measure that reflects the amount by which the convertible bond's market price exceeds its straight (or intrinsic) value. - Many investors use the straight value as a measure of the downside risk of a convertible bond and calculate "premium over straight value" - the greater the premium over straight value, the less attractive the convertible bond - Despite its use in practice, the premium over straight value is a flawed measure of downside risk because, as Jul 8, 2023 · With a coupon of $95 and a yield of 18. , When only the spot component of a forward contract is designated as the hedging instrument, the forward points may be recognized in net income on a straight-line basis over the life of market conversion premium per share / market price stock downside risk = (premium / straight value) premium over straight value = ((market price convert bond) / straight value) -1 A. 0446. 1. The higher the premium over the straight value, all other factors being constant, the less attractive the convertible bond True False. 1 You are required to calculate: (a) Conversion Value of Debenture (b) Market Conversion Price (c) Conversion Premium per share (d) Ratio of Conversion Premium (e) Premium over Straight Value of Debenture What is the premium over straight value that these high yield bonds would trade? Since the market value of a Busted convertible is very close to that of a straight bond, the premium over straight value would be very small. Here’s the best way to solve it. 2 Calculate each of the following: 3 4 Conversion value Market conversion price Conversion premium per share Conversion premium ratio Premium over straight value Favorable income differential per share Premium payback period Group Discussion Question 10. Solutions available. 98% 69. 14) Consider a convertible bond as follows: par value-$1,000, coupon rate-9. (and you compare conversion value with straight value to get the current minimum value of the convert bond) (b) The premium over straight value refers to the amount by which a convertible bond trades above its non-convertible bond value (straight value). This statement is NOT true. 7 divided by 23 is 0. A convertible bond is a bond that can be converted into shares of stock at a predetermined price. Conversion premium ratio. 5%; market price of convertible bond is $900; conversion ratio is 30; estimated straight value of bond is $700. Consider a convertible bond with a market price of $110 and a straight value of $90. Answer the below questions. Consider a convertible bond as follows: par value = $1,000; coupon rate = 9. The cash value growth does not affect the premium amount. A conversion premium is the difference between the price of a convertible security and the underlying security. Despite its use VIDEO ANSWER: Here we will find the answers to the question. Calculate: 1) Conversion value 2) Market conversion price 3) Conversion premium per share 4) Conversion premium ratio Apr 14, 2021 · Market convertible bond value = market price the convertible bond is currently selling for. What is the premium over straight value of this convertible bond? Assume the yield on a comparable non-convertible bond is \ 2, and annual compounding. 2. 77 today. 03. The first thing we have to do is find the value of the bond. 00 DPS: $1. (a) Calculate each of the following (1) conversion value, (2) market conversion price, (3) conversion premium per share, (4) co nversion premium ratio, (5) premium over straight value, (6) favorable income differential per share, and (7) premium payback period. 65 \\) today. Assume that the price of the common stock is $23 and that the dividend per share is $0. the straight value does not change, then Aug 23, 2023 · A Straight Life policy, also commonly referred to as a Whole Life policy, has a fixed premium that does not change over time. 8 of 9. 1009) / 900. Conversion ratio is 51. Conversion ratio is 24 . 28), so conversion premium equals $66. For a price change of $0. The downside risk is measured as a percentage of the straight value and computed as follows: Premium over straight value = . ” i dont understand. Conversion premium per shase 4. Conversion ratio is 35. Since it fluctuates with the changes in interest rate, coupon bond, and the credit expansion of the bond, it becomes dependent on other given variables. Delta. The market price of the convertible bond is given as $1,000. Yield to maturity of the straight bond = 18. - Straight Life policies charge a level annual premium throughout insured's life time & provide a level, guaranteed death benefit. 88 today. 7% what is the premium over straight value? 51. 5% (interest paid annually), maturity of 12 years, yield to maturity of 6. C It usually develops cash value by the end of the third policy year. Stock - Limited Downside (straight value services as floor) - Reduced Upside (by conversion premium) - Assumes interest rates STABLE - When stock falls, Convertible Bond outperforms - When stock rises, Convertible Bond underperforms - When stock stable, Convertible Bond outperforms (if CPN > Dividend received on Stock) vii. ), When a bond is sold at a discount and is amortized using the effective interest expense, each subsequent interest payment will $1,000 par 9. Question: А 35 1 Use the following information for Convertible L. Suppose that the price of the common stock increases from $28 to $35. 5%, what is the straight value of the bond? 3. Preasium over straight value 6. Can someone help me explain this with a example? thx! Jan 13, 1992 · Find step-by-step Accounting solutions and your answer to the following textbook question: Suppose that a convertible bond has a conversion ratio of 20 and a delta of 0. Jan 14, 2013 · ( 4 ) market conversion premium ratio = conversion premium per share market price of common stock = $ 3. 00 in exchange. 42 The conversion premium reflects the potential of further stock price increase which before the conversion date. 1996 16,4196 ОООО 38. What is the conversion value of the convertible bond? B. decrease in net income. May 15, 2013 · Does anyone know a good/easy way to memorize: Conversion Value Market Conversion Price Conversion Premium P/Sh Conversion Premium Ratio Premium over straight value Favorable Income Differential P/sh Premium Payback Period I have a bad rot memory and I am trying to get some substance behind the names of the ratios and the ratios themselves, can’t seem to get it to stick. 1009 = 0. Calculate each of the following: Conversion value. This is an imperfect indicator of downside risk, since the straight value itself is subject to changes when interest rates change. 7% We define the following terms (a) market conversion price = market price of convertible bond / conversion ratio (b) market conversion premium per share 16 what is the premium over straight value assuming. Price (discount factor) of a zero coupon bond. Straight Life policies have fixed premiums that do not decrease over time, no matter the cash value growth. 75. That's the answer here. Convertibles (CVs) usually sell at a premium for two basic reasons: (1) if the convertible is a bond, the bond value-defined as the price at which a straight bond of the same company would sell in the same open market-is the lowest value the CV will reach; it thus a. The premium is determined at the start of the policy and remains the same for the life of the policy. This liability gradually decreases as the premium is amortized over the bond’s term. May 24, 2024 · The unamortized premium is the portion of this premium that has not yet been expensed over the life of the bond. 47 Rating (170 Votes ) Conversion Premium Ratio = (Conversion Premium per Share / Price of Miser Electronics common stock) * 100. 23 = £1. Calculate each of the following: Conversion value; Market conversion price; Conversion premium per share; Conversion premium ratio; Premium over straight value Its premium steadily decreases over time, in response to its growing cash value. If the price of the common stock increases from $23 to $46. The convertible bond is trading at \\( \\$ 1,073. 205, then please write down 0. 14. Assume that the price of Miser Electronics common stock is $25 and that the dividend per share is $1 per annum. If, however, interest rates rise as the price of the common stock falls, the conversion value will fall and the straight value will fall, exposing the holder of the convertible bond to more par value = $1,000 coupon rate = 9. Can someone help me explain this with a example? thx! Study with Quizlet and memorize flashcards containing terms like Which statement is NOT true regarding a Straight Life policy? A Its premium steadily decreases over time, in response to its growing cash value. To account for the unamortized premium, companies record it as a liability on their balance sheets. What is the premium over straight value of this convertible bond? Assume the yield on a comparable non-convertible bond is 4%, and annual compounding. The straight-line amortization spreads out discount or premium over the bonds life or maturity date. 1% Assume that the price of the common stock is S20 and that the dividend per share is S0. 5% * market price of convertible bond =$1,000 * conversion ratio = 37. 0% market price of convertible bond = $1,000 conversion ratio = 37 estimated straight value of bond = $500 yield to maturity of straight bond = 18. Market conversion price. Step by Step Solution 3. (and you compare conversion value with straight value to get the current minimum value of the convert bond) New questions in Calculus . 1% Assume that the price of the common stock is $20 and that the dividend per share is S0. 52 % . FIN 466 Question: Consider the convertible bond by Miser Electronics: par value is $1, 000; coupon rate is 8. $$ Taken from the CFA Level II curriculum Volume 5. Premium over Straight Value. 58 = $66. What is the market conversion price? C. 1) The following is the parameter pertaining to 8% fully convertible (into equity shares) debentures issued by DAZIN Ltd. it comparable nonconvertible bonds yield 18. As can be seen, the premium over straight value is equal to 0. May 26, 2010 · Convertible bond- premium over straight value “holding all other factors constant, the greater premium over straight value, the less attractive the Convertible bond. Consider the convertible bond by Miser Electronics: par value = $1,000 coupon rate = 8. The present value is equal to 913. The conversion premium is often used to calculate the value of a convertible bond. 700 Market Price of Equity share on the date of Conversion Rs. 383 estimated straight value of bond = $510 yield to maturity of straight bond = 18. Gain a comprehensive understanding: To effectively account for bond premium and amortize it over time, it is crucial to have a thorough understanding of the underlying principles. 97 The premium over straight value is $491. Thus, to understand the conversion premium, the reader should have a clear concept of convertible securities. Premium over straight value = (convertible bond price / straight value) – 1. Premium over straight value = market price of convertible bond / straight value - 1 = ($90/$84) - 1 = 7. Conversion ratio is 28. 000 with a coupon rate of 9. Value here is equal to price as opposed to other definitions of value. For example if your answer is \ 3. Despite its use in (a) Conversion Value of Debenture (b) Market Conversion Price (c) Conversion Premium per share (d) Ratio of Conversion Premium (e) Premium over Straight Value of Debenture (f) Favourable income differential per share (g) Premium pay back period . 62 – £6. 5. The downside risk is measured as a percentage of the straight value and computed as follows: premium over straight value = market price of the convertible bond 1 straight value - . 08%. Question Consider a convertible bond as follows: par value = $1,000; coupon rate = 9. CFA Level II. 7%; Assume that the price of the common stock is$23 and that the dividend per share is $0. The higher the premium over straight value, all other factors constant, the In June 2016, Goslyn Corporation issued a three-year non- interest-bearing note with a face value of $15,000 and received cash of $11,025. 5%): Annual coupon payment = $1,000 * 9. What is the premium over straight value of this convertible bond? Assume the yield on a comparable non-convertible bond is 4%, and annual Conversion ratio is 39 . 96078 or about 96. The difference between the face value and the cash proceeds is accounted for as a discount and amortized over three years by the straight-line method a premium and amortized over three years A convertible bond has $1,000 par, pays 2. 16 for the conversion premium ratio. Calculate each of the following: Conversion value; Market conversion price; Conversion premium per share; Conversion premium ratio; Premium over straight value This number tells you the time it will take to recover the market conversion premium. 52% 5. 383, estimated straight bond value = $510, YTM of straight bond = 18. 7. 2 Suppose that the price of the common stock of Miser Conversion premium. B The face value of the policy is paid to the insured at age 100. Premium over Straight Value estimated straight value of bond = $510; yield to maturity of straight bond = 18. What is the conversion premium per share? D. A straight-line amortization will result to a constant amount amount of amortized premium or discount. (6) What is the premium over straight value for XYZ? What does this number tell you? Premium = (950 - 900. What is the premium over straight value of this convertible bond? Assume the yield on a comparable non-convertible bond is \ 3, and annual compounding. 7% Suppose that the price of the common stock increases from$23 to $46. ” What that “something else” […] Thus the straight value acts as the current floor for the price of the convertible bond. 0321 . Explain the limitations of using premium over straight value as a measure of the from BSBLDR 522 at Lloyds International College Feb 21, 2010 · Which one of these statements is correct? A) The greater the premium over straight value of a bond, the more attractive the convertible bond. Suppose that the price of the common stock increases from $23 to $46. Would really 1. Calculate: 1) Conversion value 2) Market conversion price 3) Conversion premium per share 4) Conversion premium ratio Premium over straight value = (market price of the convertible bond/straight value) - 1 = 1000/510 - 1 = 96. Calculate each of the following (1) conversion value, (2) market conversion price, (3) conversion premium per share, (4) conversion premium ratio, and (5) premium over straight value. Conversion value = conversion ratio x current stock price. 7%. Straight Value of Debenture Rs. $1,000 par 9. Identified Q&As 26. 1% Assume that the price of the common stock is $20 and that the dividend per share is $0. premium over straight value: all else constant, the greater the premium over straight value, the less attractive the convertible bond. Round your answer to 4 decimal places. The amortized premium is deducted from the carrying value of the bonds while the amortized discount is added. 25 Expected Dividend Per Share Rs. This gives us the total bond premium for the entire bond issue. market conversion price C. Market conversion price 3. 6. 03 = $491. The premium over bond value is the difference in price between the convertible bond and a straight bond without the convertibility feature from the same issuer. 5% annual coupon, $1,000 current convertible bond price, conversion ratio = 37. 383 Answer to Assuming 320 PSA for a given mortgage pool, what is Apr 11, 2018 · Thus the straight value acts as the current floor for the price of the convertible bond. The convertible bond is trading at \\( \\$ 1,088. 5% Fully Convertible (into Equity shares) Debentures issued by JAC Ltd. Finance Explain why you agree or disagree with the following statement: “The value of a putable bond is never greater than the value of an otherwise comparable option-free bond. Noting that the conversion ratio = par value/conversion price = 1000/26. The convertible bond is trading at $1,075. 155217 or about 15. wolwol April 23, 2009, 4:03am #4 par value = $1,000 coupon rate = 9. 57 $ 23 = 0. 75 = 37. (a) Calculate each of the following (1) conversion value, (2) market conversion price,(3)conversion premium per share, (4) conversion premium ratio, (5) premium over straight value, (6) favorable income differential per share, and (7) premium payback period. 205%, then please write down 0. coupon rate-8. The issuing company’s stock is currently $35 per share. The straight value is the theoretical value of the bond if it were considered as a straight bond without the conversion feature. 00 If the premium over straight value is 12. Ratio of Conversion Premium = Conversion Premium per Share / Market Price of Equity Shares = ₹ 8 / ₹ 40 = 0. convertible bond investing in a non-callable/non putable ______ ____ is equivalent to buying Aug 23, 2022 · The relationship between bond value and discount rates is the same as the relationship between bond prices and yields. Jan 13, 1992 · Explain the limitation of using premium over straight value as a measure of the downside risk of a convertible bond. Pages 7. 7%, underlying common stock price = $23, dividend per share = $0. 7: Study with Quizlet and memorize flashcards containing terms like Amortization of a forward contract premium over the life of the forward contract results in a(n) increase in net income. 96078 – 1 = 0. The straight-line method of bond premium amortization simplifies the accounting process, but it also has a significant impact on financial statements. The main limiting factor of using the premium straight value is its inconsistency. Value of callable convertible bond = Value of straight bond + Value of call option on the issuer’s stock –Value of issuer call option Jun 9, 2019 · The conversion value ($1,258. 9%, and par value of $1,000. What is the conversion premium ratio? (express in %) E. 7%, the straight bond value is $508. 383, we can insert all of our given values into our favorable income differential per share to get: (coupon rate* par value) - (conversion ratio Group Discussion Question 10. 14%. 7% Suppose that the price of the common stock declines from$23 to $8. a 1 point Consider a convertible bond trading at $1. 08% 6. Feb 24, 2020 · and Market conversion premium per share on 4 April 2013 = £7. 57 $ 23 market price of the convertible bond 1 straight value æ ö - ç ÷ è ø $ 1,000 1 $ 510 - par value conversion price $ 1,000 26. of shares) 25 Straight Value of 8% Debentures (₹) 1,000 Market Price of equity shares on the date of conversion (₹) 40 Expected Dividend per share (₹) 1 Required May 24, 2024 · The unamortized premium is the portion of this premium that has not yet been expensed over the life of the bond. ” A convertible bond has $1,000 par, pays 3% annual coupon, matures in 4 years, and is convertible from now through maturity. Conversion ratio is 21. . This number tells you by how much the bond's price could fall, so as such is a measure of downside risk. b. Suppose that the price of the common stock increases from $$\$ 23$$ to $$\$ 46$$. The lower the discount rate is, the higher the value of the bond becomes. 1 / (1 + S)^t premium over straight value=(market price of the convertible bond/straight value)-1 higher premium-->less attractive. International Financial Management . 2) The higher the value of a non callable convertible bond, the higher the value of the estimated straight value of bond = $510; yield to maturity of straight bond = 18. 1 You are required to calculate: (a) Conversion Value of Debenture (b) Market Conversion Price (c) Conversion Premium per share (d) Ratio of Conversion Premium (e) Premium over Straight Value of Debenture The following data is related to 8. Calculate Premium over Straight Value: this value helps investors interpret downside risk of a convertible bond because the convertible will not trade below its straight bond value. Conversion premium ratio 5. Conversion premium ratio = conversion premium per share / market price of common stock = 3. What is the premium over straight value? (in absolute $ value sense not the ratio) F. Conversion value 2. amount by which the market price of a convertible preferred stock or convertible bond exceeds the price at which it is convertible. Convertible securities As the name suggests, conversion securities are the select type of securities, “which are convertible into something else. 1) What will be the approximate return realized from investing in the convertible bond? Premium over straight value = (market price of the convertible bond/straight value) - 1 = 1000/510 - 1 = 96. Premium over straight value = (market price of the convertible bond/straight value) - 1 = 1000/510 - 1 = 96. (b) Answer the below questions if the price of the common stock increases from $23 to $46. conversion valie b. 0% market price of convertible bond-$1,000 conversion ratio 37 estimated straight value of bond $500 yield to maturity of straight bond-18. Business; Finance; Finance questions and answers; ed Question 5 0 / 1 pts A convertible bond issued by firm BigRed has a conversion ratio of 20, coupon rate of 5. 5% market price of convertible bond = $1,000 conversion ratio = 37. FIN. So if you buy a CB for $1100 with a straight value of $1000, your premium over straight value is: 10% Now if you buy that same bond for $1200 with a straight value of $1000, your premium over straight value is: 20% So, here your premium over straight value has gone up. 58) is higher than the straight-bond value ($1,065. 7% We define the following terms (a) market conversion price = market price of convertible bond / conversion ratio (b) market conversion premium per share Jul 22, 2021 · Explain the limitation of using premium over straight value as a measure of the downside risk of a convertible bond. In the context of the article, it is not explicitly mentioned what the premium over straight value is for the mentioned convertible bonds. 20 or 20% #### Step 5: Premium over Straight Value of Debenture The premium over the straight value of the debenture is the difference between the market price of the debenture and its straight value. What is the yield advantage of bond (aka favorable income Dec 12, 2024 · The downside risk is measured as a percentage of the straight value and computed as follows: • The higher the premium over straight value, all other factors constant, the less attractive the convertible bond. 5% annual coupon, matures in 4 years, and is convertible from now through maturity. Premium over Straight Value = (Market Price of Convertible / Straight Value) - 1 A conversion premium is the difference between the price of a convertible security and the underlying security. The convertible bond is trading at $1,086. Premium Over Straight Value The premium over straight value is the difference between the current market price of the convertible bond and the projected value of the bond if it were to be sold in its straight form. 0321. In this task, we are required to determine the conversion value, market conversion price, conversion premium per share, conversion premium ratio, premium over straight value, favorable income differential per share, and the premium payback period. Favorable Income Differential per Share. 08 % . Premium over Straight Value is the difference between the market price of the convertible bond and its estimated straight value. 125 for the stock price per share, what is the approximate change in the convertible bond’s value?. Step 8. 4. Premium Over Straight Value (Downside Risk) (Market price of convertible bond / Straight value) -1. D It has the lowest annual premium of the three Nov 14, 2024 · The data given below relates to a convertible bond Face value Rs 250 Coupon rate 12 Conversion date from today 5 years No of shares per bond 20 Market price of share Rs 12 Straight value of bond Rs 23484 Market price of convertible bond Rs 265 Prevailing yield of same tenure similar type non-convertible bond 1375 Next year dividend on equity stock per share Rs 050 Calculate (a) Conversion Answer to 14. 5% Market price of convertible bond = $900 Conversion ratio = 30 Estimated straight value of bond = $700 Assume that the price of ABC Company's common stock is $25 and that the dividend per share is $1 per annum Calculate each of the following: a) Conversion value b) Market conversion price c) Conversion premium If the straight value does not change, then downside risk is indeed limited to the difference between the price paid for the bond and the straight value. 750127 coupon rate par A convertible bond has $1,000 par, pays 2. 7% We define the following terms (a) market conversion price = market price of convertible bond / conversion ratio (b) market conversion premium per share Conversion premium is the term used in the financial market in connection with convertible securities. 7: Caywood Christian Capital Management will invest new money in its $400 million high-yield portfolio in “busted convertibles,” double- and triple-B rated May 26, 2010 · Convertible bond- premium over straight value “holding all other factors constant, the greater premium over straight value, the less attractive the Convertible bond. (vi) Favorable income differential per share = [(coupon interest from bond) - (conversion ratio)(dividend per share)] / conversion ratio. The downside risk is measured as a percentage of the straight value and computed as follows: premium over straight value =. 5% 10 years to maturity, and a par valt of 51. v. 00% stock price: $30. 383, we can insert all of our given values into our favorable income differential per share to get: (coupon rate* par value) - (conversion ratio Nov 17, 2024 · (a) The following is the parameter pertaining to 8 fully convertible (into equity shares) debentures issued by DAZIN Ltd at 1000 Market Price of 8 Debenture ( ) 1200 Conversion Ratio (No of shares) 25 Straight Value of 8 Debentures ( ) 1000 Market Price of equity shares on the date of conversion 40 Expected Dividend per share ( ) 1 Required Analyse and assess the following (i) Conversion Value Jun 28, 2024 · 1. 7% Assume that the price of the common stock is$23 and that the Feb 20, 2009 · (v) Premium over straight value= (market price of convertible bond / straight value) - 1 = ($1,000 / $510) - 1 = 1. 2 Face Value $1,000 3 Coupon Rate 9. Aug 22, 2015 · Explain the limitation of using premium over straight value as a measure of the downside risk of a convertible bond. 00% market price of the convertible bond: $950. 1 You are required to calculate: (a) Conversion Value of Debenture (b) Market Conversion Price (c) Conversion Premium per share (d) Ratio of Conversion Premium (e) Premium over Straight Value of Debenture Jan 13, 1992 · Find step-by-step Accounting solutions and your answer to the following textbook question: This excerpt is taken from an article titled “Caywood Looks for Convertibles,” which appeared in the January 13, 1992, issue of BondWeek, p. Consider the convertible bond by Miser. 2 Suppose that the price of the common stock of Miser Keywords: conversion ratio, conversion premium, conversion price, hard put, soft put, conversion value, straight value, premium payback period, premium over straight value, fixed income equivalent, common stock equivalent, mandatory convertible, reverse convertible, convertible bond arbitrage Thus the straight value acts as the current floor for the price of the convertible bond. 57/23 = 15. The higher the premium over straight value, all other factors constant, the less attractive is the convertible bond. ) Consider the convertible bond by ABC Company: Par value = $1,000 Coupon rate = 8. ( 5 ) premium over straight value = market price of the convertible bond 1 straight value − = $ 1,000 1 $ 510 − = 1. 99 today. Market Price of Debenture 900 Conversion Ratio 30 Straight Value of Debenture 700 Market Price of Equity share on the date of Conversion 25 Expected Dividend Per Share 1 You are required to calculate: (a) Conversion Value of Debenture (b) Market Conversion Price C (c) Conversion A convertible bond has $1,000 par, pays 3% annual coupon, matures in 4 years, and is convertible from now through maturity. 8. Total views 41. Consider a convertible bond as follows: par value: $1,000. Solution: Step 1: Calculate the annual coupon payment The annual coupon payment can be calculated by multiplying the par value of the bond ($1,000) by the coupon rate (9. Factors that increase the premium over bond value are: The demand from life insurance companies and other institutional investors who may be restricted by law from buying stock. Premium payback period b. To calculate the premium over straight value, we subtract the straight bond value from the market price: $1,000 - $508. Consider the convertible bond by Miser Electronics: par value1, 000 market price of convertible bond- $900 estimated straight value of bond $700 . The number of shares needs to be equal to A convertible bond has $1,000 par, pays 5% annual coupon, matures in 4 years, and is convertible from now through maturity. Nov 25, 2018 · The rate of return is = = = 0. Jan 29, 2015 · For a rough estimate you can compare the value against a straight bond (one without options). at ₹ 1,000: Market Price of 8% Debenture (₹) 1,200 Conversion Ratio (No. market price of convertible bond conversion ratio $ 1,000 37. 383 conversion premium per share market price of common stock $ 3. 5% market price of convertible bond = $900 conversion ratio = 30 estimated straight value of bond = $700 Assume that the price of Miser Electronics common stock is $25 and that the dividend per shareis $1 per annum. Jan 15, 2025 · 1) The following is the parameter pertaining to 8 fully convertible (into equity shares) debentures issued by DAZIN Ltd at 1000 Market Price of 8 Debenture 1200 Conversion Ratio (No of shares) 25 Straight Value of 8 Debentures 1000 Market Price of equity shares on the date of conversion 40 Expected Dividend per share 1 Required Analyse and Mar 9, 2018 · Greater the premium over straight value less attractive the price of the convertible bond. 54%. May 26, 2010 · The higher this number, the higher your downside risk. 50% 4 Market price of a convertible bond $1,100 5 Conversion Find step-by-step Accounting solutions and the answer to the textbook question Consider a convertible bond as follows: * par value = $1,000 * coupon rate = 9. Sep 16, 2023 · The conversion premium compares the current market against the higher of the conversion value or straight-bond value. Why would this be the In this task, we are required to determine the conversion value, market conversion price, conversion premium per share, conversion premium ratio, premium over straight value, favorable income differential per share, and the premium payback period. conversion ratio30 Assume that the price of Miser Electronics common stock is $25 and that the dividend per share is $1 per annum Calculate each of the following a. 1 Approved Answer kondru a answered on July 22, 2021 What is the premium over straight value of this convertible bond? Assume the yield on a comparable non-convertible bond is 3%, and annual compounding. Study with Quizlet and memorize flashcards containing terms like When a bond is sold at a premium and is amortized using the effective-interest method, each subsequent interest payment will result in a ______ compared to the prior payment. 5% . Jan 13, 1992 · Conversion premium per share = market conversion price - current market price = 26. Conversion premium per share. The policy does accumulate a cash value over time, but this does not cause the premium to decrease. C) The higher the market conversion premium ratio, the lower the market price. 383 * estimated straight value of bond = $510 * yield to maturity of straight bond = 18. Value of convertible bond = Value of straight bond + Value of call option on the issuer’s stock. The straight-bond value is the value of the convertible in the event that it didn't have the conversion option. Its premium steadily decreases over time, in response to its 14) Consider a convertible bond as follows: par value-$1,000, coupon rate-9. Question: 1. Calculate each of the following: (i) Conversion Value; (ii) Market Conversion Price; (ii) Conversion premium per share; (iv) Conversion premium ratio; (v) Premium over straight value; (vi) Favourable income differential per share, and (vii) Premium payback period. 97. Answer to ed Question 5 0 / 1 pts A convertible bond issued by. Premium over straight value Group Discussion Question 10. 37 \\) today. 39 The market conversion premium ratio expresses the premium or discount inves- tors have to pay as a percentage of the current market price of the shares: Market conversion premium ratio Market conversion premium per share Underlying share price In the WMU 2. For example, if the bond premium is $50 and the par value is $1,000, the bond premium is 5% of the par value. Favorable inoome differential per share 7. 42 Conversion Premium = $1,325 – $1,258. 000. 83. Calculate each of the following (1) conversion value, (2) market conversion price, (3) conversion premium per share, (4) conversion premium ratio, (5) premium over straight value, (6) favorable income differential per share, and (7) premium payback period. From an accounting perspective, the straight-line method is Convertible Bond vs. conversion What is the price of a straight bond with: $1,000 face value, coupon rate of 8%, YTM of 7%, and a maturity of 20 years? the greater the premium over par value. 0% market price of convertible bond $1,000 conversion ratio-37 estimated straight value of bond -$500 yield to maturity of straight bond-18. Find step-by-step Accounting solutions and your answer to the following textbook question: Consider a convertible bond as follows: * par value = $1,000 * coupon rate = 9. 96. The greater the premium over straight value, the less attractive the convertible bond. 00 conversion ratio: 22 yield to maturity of straight bond: 10. Can someone help me explain this with a example? thx! Straight Value of Debenture Rs. In conclusion, the statement that is NOT true regarding a Straight Life policy is: D. For example if your answer is 3. The bond’s premium over straight value is closest to: $$ \begin{align*} \text{Premium over straight value} &=\frac{\text{Convertible bond price}}{\text Mar 28, 2024 · The conversion premium is calculated by determining the difference between the price of the convertible security and the greater of its conversion value or straight bond value. 92 % . To express the premium as a May 15, 2022 · Answer the below questions. 5% = $95 Step 2: Calculate the conversion value The conversion value can be calculated by multiplying the market price of the convertible bond ($1,000) by the conversion ratio (37. Oct 14, 2018 · (1) Conversion value (2) Market conversion price (3) Conversion premium per share (4) Conversion premium ratio (5) Premium over straight value (6) Favorable income differential per share (7) Premium payback period b. Security Valuation 73 The following data is related to 8. keep_running March 9, 2018, 7:56am #1. Familiarize yourself with the terms and concepts associated with bond premium, such as face value, coupon rate, and market interest rate. Key Takeaways Jul 13, 2021 · Example: Calculating Premium over Straight Value. B) Increase in interest rate volatility will increase a convertible, non-callable bond. The premium over straight price is: (market price of bond) / (straight value) – 1 = ($1,055 / $1,010) – 1 = 0. Let's get going here.
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