Some more "traditional" assets have option like features; some of these instruments include

A. callable bonds

B. convertible bonds

C. subordinated bonds

D. callable bonds and convertible bonds

E. callable bonds, convertible bonds, and subordinated bonds

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Elin HesselLv2

28 Sep 2019

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On August 31, 2013, Chickasaw Industries issued $25 million of its 30-year, 6% convertible bonds dated August 31, priced to yield 5%. The bonds are convertible at the option of the investors into 1,500,000 shares of Chickasaw's common stock. Chickasaw records interest expense at the effective rate. On Aug 31, 2016, investors in Chickasaw's convertible bonds tendered 20% of the bonds for conversion into common stock that had a market value of $20 per share on the date of conversion. On Jan 1, 2015, Chickasaw Ind. issued $40 million of its 20-year, 7% bonds dated Jan 1 at a price to yield 8%. On Dec 31, 2016, the bonds were extinguished early through acquisition in the open market by Chickasaw for $40.5 million.

(a) What are convertible bonds and why would Chickasaw have issued them? (b) Suggest an alternative to the method Chickasaw used to calculate and record interest. (c) Answer question 2 (of the case problem).

skytiger575

Maple Aircraft has issued a 5.25% convertible subordinated debenture due 2014. The conversion price is $61.00 and the debenture is callable at 103.25% of face value. The market price of the convertible is 90.00% of face value, and the price of the common is $55.50. Assume that the value of the bond in the absence of a conversion feature is about 64.00% of face value.

What is the conversion ratio of the debenture?

If the conversion ratio were 49.00, what would be the conversion price?

What is the conversion value?

At what stock price is the conversion value equal to the bond value?

How much is the convertible holder paying for the option to buy one share of common stock?

By how much does the common have to rise by 2014 to justify conversion?

When should Maple call the debenture?

A bond that can be paid off early at the issuer's discretion as referred to as to being which type of bond?

a. Callable

b. Unsecured

c. Senior

d. Par value