Question Details

What will the yield to maturity on the bond be 



Question 1:
You have the following information about a convertible bond issue:
Burroughs Corporation
7 ¼% Due 8-1-2010
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Agency rating (Moody-/S&P) A3/AConversion
ratio 12.882
Market price of convertible 102
Market price of common stock $ 66.00
Dividend per share-common $ 2.60
Call price (first call: 8-1-2000) 106
Estimated floor price $ 66.50
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Using the information above, calculate the following values and show calculations:
(a) Market conversion value.
(b) Conversion premium per common share.
(c) Current yield-convertible.
(d) Dividend yield-common.
Question 2:
The yield to maturity on one-year zero-coupon bonds is currently 7%, and the yield to maturity
on two-year zeros is 8%. The Treasury plans to issue a two-year maturity coupon bond, paying
coupons once per year with a coupon rate of 9%. The face value of the bond is $100.
(a) At what price will the bond sell?
(b) What will the yield to maturity on the bond be ?
(c) If the expectations theory of the yield curve is correct, what is the market expectation of the
price that the bond will sell for next year?
(d) Recalculate your answer to ( c) if you believe in the liquidity preference theory, and that the
liquidity premium is 1%.




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