# week 08 problems

**Required:**

Download the Week 08 Problems Excel spreadsheetto use in completing your problems.

- A firm has the following preferred stocks outstanding:
- PFD A: $40 annual dividend; $1,000 par value; no maturity
- PFD B: $95 annual dividend; $1,000 par value; maturity after twenty-five years

If comparable yields are 9 percent, what should be the price of each preferred stock?

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- Given the information below, answer the following questions.
A convertible bond has the following features:

Principal |
$1,000 |

Maturity date |
20 years |

Interest |
$80 (8% coupon) paid yearly |

Call price |
$1,050 |

Exercise price |
$65 a share |

- The bond may be converted into how many shares?
- If comparable non-convertible debt offered an annual yield of 12 percent, what would be the value of this bond as debt?
- If the stock were selling for $52, what is the value of the bond in terms of stock?
- Would you expect the bond to sell for its value as debt (i.e., the value determined in b) if the price of the stock were $52?
- If the price of the bond were $960, what are the premiums paid over the bond’s value as stock and its value as debt?
- If the price of the stock were $35, what would be the minimum price of the bond?
- What is the probability that the bond will be called when the price of the stock is $52?
- If the price of the stock rose to $73, what would happen to the price of the bond?
- If the price of the stock were $73, what would the investor receive if the bond were called?