6. The bond's value will be $ (Round to the nearest cent.) Evaluating Annie Hegg's Proposed investment in Atilier Industries Bonds investing in the bonds of Atilier Industries. The bonds were issued 5 years ago at their $1,000 par value and have exactly 25 years remaning until they mature. They have an 8.0% ooupon nterest rate, are convertible into 50 shares of common stock, and can be caled any time at $1,080.00. The bond is rated Aa by Moody's. Atilier Industries, a manufacturer of sporting goods, recently acquired a small athletio-wear oompany that was in financial distress. As a result of the acquisition Moody's and other rating agencies are considenng a rating change for Atiier bonds. Recent economic data suggest that expected inflation, currently at 50% annualy, is likely to increase to a 6.0% annual rate. Annie remans interested in the Atlier bond but is concerned about infation, a potential rating change, and maturity risk. To get a feel for the potential impact of these factors on the bond value, she decided to apply the valuation techniques she leamed in her fnance course. a. If the price of the common stock into which the bond is convertible rises to $30.00 per share after 5 years and the issuer To Do calls the bonds at $1,080.00, should Annie let the bond be called away from her or should she convert it into common stock? b. For each of the following required returns, calculate the bond's value, assuming annual interest. Indicate whether the bond wil sell at a discount, at a premium, or at par value. (1) Required return is 60% (2) Required return is 80% (3) Requared return is 10.0%. c. Repeat the calculations in part (b), assuming that interest is paid semiannually and that the semiannual required retums are one-half of those shown Compare and discuss differenoes betwe en the bond values for each required retum calculated here and in part (b) under the annual versus semiannual payment assumptions d. " Annie strongly bele ves that expected inflation w nse by 1 .0% dunng the next few months, what is the most she should pay for the bond, assuming annual interest? e. If the Atiier bonds are downrated by Moody's from Aa to A, and if such a rating change will result in an increase in the required return from 8.0% to 8.75%. what impact wil this have on the bond vale, assuming annual interest? f. If Annie buys the bond today at its $1,000 par value and holds for exactly 3 years, at which tirne the required return is 7.0%, how much of a gain or loss will she experience in the value of the bond (ignoring interest already received and assuming annual interest)? g. Rework part assuming that Annie holds the bond for 10 years and sells it when the required return is 7.0%. Compare your finding to that in part (f), and comment on the bond's maturity risk h. Assume that Annie buys the bond at its current price of $983.80 and holds it until maturity. What will her current yield and yield to matunity (YTM) be, assuming annual interest? L. After evaluating all of the issues raised above, what recommendation would you give Annie with regard to her proposed investment in the Atilier Industries bonds? Annie Hegg has been considering The bond would seling at (2) (Select from the drop-down menu.) (3) Required return is 10.0%. The bond's value will be S The bond would selling (3)_ (Round to the nearest cent. t (3) (Select from the drop-down menu.) c. Repeat the calculations in part (b), assuming that interest is paid semiannually and that the semiannual required retums are one-half of those shown. Compare and discuss differences between the bond values for each required retum calculated here and in part (b) under the annual versus semiannual payment assumptions (1) Required return is 6.0%. The bond's value wil be $ (Round to the nearest cent The bond would selling at (4)_ (2) Required return 8.0%. The bond's value will be $ Select from the drop-down menu.) (Round to the nearest cent The bond would selling at (5)_. (3) Required return is 10.0%. The bond's value will be $ _(Select from the Select from the drop-down menu.) (Round to the nearest cent.) The bond would seling at (6)- (Select all the choices that apply.) A. Under all three required retums for annual interest payments the bonds are oonsistently priced Select from the drop-down menu.) a. If the price of the common stock into which the bond is convertible rises to $30.00 per share after 5 years and the issuer calls the bonds at $1,080.00, should Annie let the bond be called away from her or should she convert it into common stock? B. When the required return is above (below) the coupon the bond sells at a discount (premium). C. Under all three required retums for both annual and semiannual interest payments the bonds are D. When the change is made from annual to semiannual payments the value of the premium bond higher than for semiannual interest payments When the required return and coupon are equal the bond sels at par consistent in their direction of pricing. increases and the value of the par bond stays the same while the value of the discount bond The value of the stock if the bond is converted is S (Round to the nearest cent.) Select the best choice below.) OA. Annie should not convert the bonds because the value of the shares is $1,500.00>$1,080.00. O B. Annie should convert the bonds because the value of the shares is $1,500.00> $1,080.00 O C. Annie should convert the bonds because the value of the shares is $1,500.00