Task: The XLarge Corporation has a convertible bond outstanding with a conversion price of $28 per share. The $1000 par value bonds have a 5% coupon rate and 20 years to maturity. The firm's common stock is currently selling for $36 per share and the bonds are selling for $1,300.00.
Question 1: If equivalent bonds are currently yielding 10% to maturity, the pure bond value of this bond is (use semiannual analysis as presented in the text):
a. $570.98
b. $622.45
c. $759.72
d. $1,000
Question 2: The potential downside loss of the bond is:
a. $240.28
b. $300.00
c. $540.28
d. $729.02
Question 3. The impact on EPS is influenced by all but the
a. relative debt/equity ratios of the firms.
b. exchange ratio.
c. relative earnings growth rates of the firms.
d. premium paid above market value for the acquired firm
Question 4. The spot rate of the British pound to the dollar is 1.68 ($/£). The 180 day forward rate is $1.71, the annualized forward premium is:
a. 1.018%
b. 3.636%
c. 7.273%
d. 2.036