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Vernon Glass Company has $20 million in 10 percent convertible bonds outstanding. The conversion ratio is 50, the stock price is $19, and the bond matures in 10 years. The bonds are currently selling at a conversion premium of $70 over their conversion value.
If the price of the common stock rises to $25 on this date next year, what would your rate of return be if you bought a convertible bond today and sold it in one year? Assume on this date next year, the conversion premium has shrunk from $70 to $15. (Hint: Don't forget to include the interest payment for the first year.)
What is the rate of return (rounded to 2 decimal places)?
Suppose a stock had an initial price of $95 per share, paid a dividend of $2.00 per share during the year, and had an ending share price of $114.
Discuss the main criticisms and defenses of the CAPM? In your answer, briefly outline the alternative asset pricing models that have been developed that address these CAPM criticisms. Use dot points if necessary. State any assumptions made.
A bond has a par value of $1000, a time to maturity of 6 years, and a coupon rate of 9% with interest paid annually.If the current market price is $845.
What two possible reasons could cause the required return to differ from the coupon interest rate?
Why is it important to consider additions to net working capital in developing cash flows?
What was the strategic rationale for acquiring Cadbury?
Assume that you just won the state lottery. Your prize can be taken either in form of $40,000 at the end of each of the next 25 years (i.e., $1 million over 25 years) or as a lump sum of $500,000 paid immediately.
Calculate the total return for each year and Indicate the level of return you would expect in 2013.
If the interest rate is 8%, what is the equivalent value of your 12-year annuity if paid in one lump sum five years from today?
What is the estimated net present value of the project, after consideration of the potential future opportunity?
What is meant by an "agency cost" or "agency problem"?
If they receive an A rating, the yield to maturity on similar A bonds is 10.5%. What will be the price of the bond if it receives and AA rating? An A rating? (Show would as well as answers)
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