Calculating Returns Suppose you bought a 6 percent coupon bond one year ago for $940. The bond sells for $920 today.
a. Assuming a $1,000 face value, what was your total dollar return on this investment over the past year?
b. What was your total nominal rate of return on this investment over the past year?
c. If the inflation rate last year was 4 percent, what was your total real rate of return on this investment?Calculating Values for Convertibles You have been hired to value a new 30-year callable, convertible bond. The bond has a 7 percent coupon, payable annually, and its face value is $1,000. The conversion price is $60, and the stock currently sells for $50.
a. What is the minimum value of the bond? Comparable nonconvertible bonds are priced to yield 9 percent.
b. What is the conversion premium for this bond?
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