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Peabody Energy plans to issue a convertible bond in the near future. The bond will pay a $1,000 maturity value in exactly 30 years. The coupon rate will be 1 percent (with a semiannual coupon, of course). The holder of the bond will have the right, but not the obligation, to exchange the bond for 40 shares of Peabody Energy common stock at any time following the issue date.
Required: Estimate the market value of the Peabody Energy convertible bond. You should assume that the standard deviation of the return on Peabody common stock will be 40 percent. The TRACE reporting system is a reliable source of information on the value of Peabody’s outstanding debt. You may use the Black-Scholes option pricing model to value the embedded conversion option
Heginbotham Corp. issued 20-year bonds two years ago at a coupon rate of 8.9 percent. The bonds make semiannual payments. If these bonds currently sell for 110 percent of par value, what is the YTM?
You deposit $1,900 at the end of each year into an account paying 10.1 percent interest. How much money will you have in the account in 24 years? How much will you have if you make deposits for 48 years?
In order to fund her retirement, Michele requires a portfolio with an expected return of 0.10 per year over the next 30 years. She has decided to invest in Stocks 1, 2, and 3, with 25 percent in Stock 1, 50 percent in Stock 2, and 25 percent in Stock..
Using the expectations theory, a) compute the expected interest rates (yields) for each security one year from now, b) what will the rates be two years from today?
inclusive have the following common conditions the riskless interest rate r gt 0 the underlier is trading at a spot
Explain how forward contracts and currency futures could be used by Mega Company and construct appropriate hedges with forward contracts and currency
Prepare an ending 1998 Income Statement and Balance Sheet from the following information: Sales $800,000; Cost of Goods Sold $300,000; Accounts Receivables $20,000; Bonds Outstanding $160,000; Accounts Payable $20,000; Advertising Expense $1,000; Adm..
Ribbon Industries reported sales of $3 million and net income of $400,000 for 2010. The retained earnings balance at the end of 2012 is $7 million. Ribbon Industries has a dividend payout ratio of 30%. If sales are expected to increase by 25% next ye..
You have come across an asset that pays no dividends but has an expected price of $100 an year from now. The correlation of this asset with the market portfolio is believed to be 0.5. The standard deviation of the return is believed to be 30%.
You have been given the following information on two corporations; you are to assume that the securities are correctly priced. My Corp, Inc. has a Beta of 1.25 and an Expected Return of .145; Your Corp, Inc. has a Beta of .75 and an Expected Return o..
in 1895 the first u.s. open golf championship was held. the winners prize money was 150. in 2006 the winners check was
Reynolds Enterprises is attempting to evaluate the feasibility of investing $85,000 in a machine having a 5-year life. Calculate the payback period for the proposed investment. Calculate the NPV for the proposed investment. Calculate the IRR for the ..
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