Consider the following four bonds: a. If the market yield is 7 percent, what are the values

Question:

Consider the following four bonds:

a. If the market yield is 7 percent, what are the values of the three first bonds (assume a face value of $1,000)?
b. Why are the values of the bonds lower than their face values?
c. Why is the coupon rate for the convertible bond lower than that for the non convertible, coupon issue?
d. Given that the convertible bond is trading at $1,040, what is the value of the option to convert?
e. Suppose that the market yield rises to 7.5 percent. What are the bond values at that yield? Explain why the change in the value of the bonds is different.

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...